Major corporate transactions often run over a longer period of time – the result of lengthy negotiations or anti-trust approval processes. At the same time, the acquiring company only has a short period of time between the acquisition date and the preparation of annual or quarterly financial statements for the integration of the new subsidiary into its balance sheet. Experts at PwC assist companies with the analysis of the accounting consequences of a corporate transaction and present them with alternative courses of action.
Although many companies already prepare their accounts in accordance with International Financial Reporting Standards (IFRS), nevertheless there are still differences that can result, among other things from differing application of option rights or specific sector or country-related reporting practices. These differences are made even greater when different accounting standards are applied (e.g. IFRS versus US GAAP or HGB). At the same time, the new IFRS 3(R) leads to considerable changes in the reporting of company acquisitions.
Although the new IFRS 3(R) is only mandatory for annual reporting periods beginning on or after July 1, 2009, and consequently for many companies not until 2010, IFRS users should take an intensive look now at the changes involved - particularly as the new standard can already be applied voluntarily during the transitional period.
The decision whether a company should apply the previous version of IFRS 3 or the new one can have considerable effects on net assets, financial position and results of operations. For this reason, a precise analysis should be made in the case of corporate transactions to establish exactly which effects will result from the respective application of the old and the new standard. For example, depending on the type of transaction, positive effects on equity capital could be achieved as well as a minimization of the future volatility in the income statement.
Once the contracts have been signed, it is often too late to prevent negative consequences for reporting, future development of results and significant indices. As time and personnel are tight, planning the necessary activities for integration into the financial reporting according to significance plays a decisive role for the acquirer. Among other things, this includes an in-depth analysis of the target's previous accounting principles and consideration of sector or country-related peculiarities. In addition, IFRS 3 specifies that the book values of an acquired company's assets and liabilities calculated according to IFRS must be disclosed directly prior to the company's integration, meaning that it is necessary to align to the acquirer's accounting principles immediately.
PwC specialists help to analyse these effects in detail and find alternative courses of action. This provides companies with an early understanding of the effects of such transactions and enables them to react accordingly. As a result of the involvement of PwC experts, companies have a better basis for assessment of the effects and advantages of the transaction. They gain planning safety because the expected effects on the balance sheet and indices can be analysed at an early date.