FRC review of the accounting and reporting for business combinations
News types: Corporate Reports, Generic Announcement, Guidance, Policies and Responsibilities, Publications, Statements
Published: 29 September 2022
The Financial Reporting Council (FRC) has today published its thematic review of the accounting and reporting for business combinations .
Business combinations tend to be significant but infrequent transactions that give rise to issues outside the routine work of the accounting function. These transactions can have a significant impact on a company’s operations and financial performance and therefore often require thorough discussion within the management commentary of an annual report as well as having a widespread impact on the financial statements themselves.
The review looks at annual reports of a number of companies which have recently completed a business combination, and draws out some of the features of better reporting and disclosures, whilst also highlighting areas for improvement.
Overall, the FRC was generally pleased with the quality of reporting of business combinations. However, there is scope for improvement by companies in a number of areas:
Business combinations tend to be significant but infrequent transactions that give rise to issues outside the routine work of the accounting function. These transactions can have a significant impact on a company’s operations and financial performance and therefore often require thorough discussion within the management commentary of an annual report as well as having a widespread impact on the financial statements themselves.
The review looks at annual reports of a number of companies which have recently completed a business combination, and draws out some of the features of better reporting and disclosures, whilst also highlighting areas for improvement.
Overall, the FRC was generally pleased with the quality of reporting of business combinations. However, there is scope for improvement by companies in a number of areas:
- Ensuring that there is clear and consistent explanation of the reason for and the impact of the business combination throughout the annual report, allowing the reader to understand ‘the full story’ of the acquisition.
- Including clear and informative disclosures around matters such as fair value adjustments made to assets and liabilities acquired, factors giving rise to goodwill, the impact on tax balances, contingent consideration, related cash flows and any significant judgements and estimates made in accounting for the acquisition.
- Avoiding any boiler plate wording - narrative should always reflect the company’s particular circumstances.