Statement 141 (R) will change how companies approach financial planning and reporting around mergers, acquisitions and ownership changes.

When more than 1,850 executives were asked about the impact of FASB Statement No. 141 (R), Business Combinations, 40 percent said that the revised standard would cause them to rethink deal strategy and/or impact planned deal activity, according to an online poll from Deloitte.

"While the credit crunch has slowed down the velocity of transactions in the market, our clients are aware that Statement 141 (R) could also have a significant impact on deal flow and deal making," said Stamos Nicholas, Deloitte's national Business Valuation leader. "The finance and accounting, business development, tax and legal departments of companies are working to understand the implications of Statement 141 (R) as the processes for how a deal is consummated and reported will require significant preliminary and ongoing analyses."

Statement 141 (R) is the first substantially converged accounting standard by the Financial Accounting Standards Board and the International Accounting Standards Board. The rule will change how companies approach financial planning and reporting around mergers, acquisitions and ownership changes. Statement 141 (R) is effective for companies with fiscal years beginning after December 15, 2008.

"While early adoption of the Statement 141 (R) rule changes is prohibited, boards and executives should be working now to gain a solid understanding of how their businesses will be impacted, " said Greg Forsythe, a Deloitte Business Valuation technical specialist.

Only 4 percent of poll respondents indicated that their companies have already finished assessing the valuation impact of Statement 141 (R).

Deloitte recommends deal teams prepare for key changes to Statement 141 (R) that include:

In-process research and development (IPR&D)
Currently, IPR&D is included in a purchase price allocation, but is immediately written off. Statement 141 (R) mandates recognition of IPR&D as an intangible asset separate from goodwill at the acquisition date, with no immediate write-off.

Initial recognition of contingent assets and liabilities
Currently, preacquisition contingencies, such as an outstanding lawsuit, are recorded at fair value if such can reasonably be determined during the allocation period. Statement 141 (R) will set fair value for all contractual and certain noncontractual contingencies at the acquisition date.

Step acquisitions
Currently, if a company has an equity interest in another company and purchases an additional interest and obtains control, there is no adjustment to the initial interest. Under Statement 141 (R), the previously held interest must be remeasured at fair value.

Measurement date for equity securities that are issued in a business combination
Currently, an entity would value equity securities issued in a combination a few days before and a few days after the terms of the arrangement are agreed and announced. Under the new rule, the acquisition date becomes the measurement date.

Recognition of contingent considerations at acquisition date and in subsequent periods
Currently, only contingency amounts that are determinable at the date of acquisition are included in the cost of the acquired business. Under Statement 141 (R), in addition to being recorded at fair value at the acquisition date, contingent consideration arrangements recorded as liabilities must be marked to market each period through earnings.

Acquisition-related costs of the acquirer
Currently, direct and incremental costs, such as investment banking fees, accounting fees and legal fees, are capitalized as part of the business combination. Under Statement 141 (R), acquisition-related costs need to be accounted for separately in the business combination. In general, transaction costs will be expensed and will not be accounted for as a component of goodwill.