April 2009 – FASB to Relax the Fair Value Reporting Requirements Enacted in SFAS 141(R)

The stock market reacted positively on April 2nd, boosted by the Financial Accounting Standards Board (FASB) decision to ease rules associated with the SFAS 141 (R) fair market accounting standards. The Dow Jones Industrial Average was up 279 points, or 3.6%, at 8040.77 — topping the 8000 mark for the first time since February 10, 2009.

On December 15, 2008 SFAS 141(R) was enacted to extend the fair-value reporting requirements to new areas; including mergers, acquisitions, and divestitures.  The most controversial, was the required reporting of the value of acquired contingencies (e.g. environmental issues, litigation, warranty payouts) be estimated on the acquisition date (Day 1).  To obtain more information on this topic read EHS Support’s initial Alert and FAQ’s issued in August 2008. Click Here read the Alert.

On April 1, 2009 the FASB announced amendments to the SFAS 141(R).  The SFAS 141 (R)-1 will no longer require subsequent measurement at fair value, which would result in different measurements of assets and liabilities.

The FASB has withdrawn from its position to apply fair value measurement to contingencies.  As amended, SFAS 141(R) represents no meaningful change from the contingency provisions in the original SFAS 141.  The initial SFAS 141 required contingencies assumed in a business combination be recognized at fair value if the acquisition-date fair value of the contingency can be “determined” during the measurement period.  The current amendments do not provide guidance on when the fair value of a contingency can be “determined”.  The amendments significantly reduce the risk associated with reporting environmental and litigation liabilities acquired during mergers and acquisitions.

EHS Support will continue to monitor the FASB decisions and guidance to provide direction on how to properly handle environmental and litigation liabilities during mergers and acquisitions

For more information or if you have questions or comments please contact Andy Patz at 412.215.7703 or andy.patz@ehs-support.com

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