Article

FASB advisers flag accounting rules for M&A deals for targeted changes

Jul 01, 2025

Senior accountants recently advised the FASB to align the accounting rules for asset acquisitions and business combinations, emphasizing that reporting outcomes in certain areas differ in ways that are tough to explain to company chief executive officers (CEOs).

Members of the Financial Accounting Standards Advisory Council (FASAC) on June 5, 2025, suggested targeted improvements should be made around items that get revalued at acquisition, including contingent consideration, intangibles such as goodwill, and stock compensation. Both investors and accountants would benefit, they said.

"A lot of times you have investors and preparers on different sides of an issue, and you try to figure out what you're optimizing for," said Stacy Harrington, vice president and corporate controller at Microsoft Corp. "But I think on a lot of the items, the difference between asset acquisition and business combination, there are things that are more costly to apply," she said.

For investors, the struggle surrounds gaining an understanding about the impact of mergers and acquisitions (M&A) on a company's performance, particularly when differentiating between growth from existing operations and growth from acquisitions, the discussions revealed. For accountants, the challenge surrounds being able to provide clear information about the deal, especially when explaining the strategic objectives and potential benefits of the transactions to CEOs who aren't savvy about the workings of U.S. Generally Accepted Accounting Principles (GAAP).

"And in our industry, brand names are very powerful. It's kind of the central value proposition for our business. And so, there are times where it can feel a little uncomfortable if I just buy the brand name rights alone. It is the 'for revenue generating, value generating asset' of the transaction," said Matt Janzaruk, senior vice president and chief accounting officer, at the Procter & Gamble Co. "And it can be a little bit counterintuitive if I just add a few things on top that really aren't substantive, but then the cleaner the definition of business, I get to a different accounting column," he said. "Outside of folks like us who live and breathe these differences, there is a bit of a communication issue when we try to explain these starkly different outcomes."

The insights were brought during the FASAC's discussions aimed at figuring out whether new or evolving business transactions surrounding mergers and acquisitions (M&A) were bringing issues that need to be resolved under GAAP. The FASAC, an operating arm of FASB trustees, the Financial Accounting Foundation, is composed of 36 senior financial professionals who advise the FASB on its projects and agenda. The discussion comes at a time when the FASB is seeking input about which new topics to add to its technical agenda.

FASAC members highlighted that the focus for investors is being able to easily determine whether an M&A deal is creating value or destroying value, which might not have direct accounting implications. For bigger deals, the big question surrounds whether it's creating value to the business, including in the long term, explained Saul Martinez, head of US financial research at HSBC.

"And I'm not sure the accounting really drives that or is that important for large deals because it's usually pretty readily apparent," Martinez said. "When a deal happens, you're going to look at certain metrics…. but over time, as you're measuring whether it makes sense, it's the normal stuff. 'Are you executing? Is the business growing? Is the strategic value playing out through revenue growth or balance sheet growth? Are the cost energies really taking place?'" he said. "And that's a big driver of a lot of deals."

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