ACCOUNTING FOR BUSINESS COMBINATIONS: APPLICATION OF RULES FROM IFRS, SAUDI ARABIA, AND USA

Peter Aghimien
Abdullah A. Asiri
Abdullah G. Yamani
King Abdulaziz University
ABSTRACT
Business Combinations occur when an entity obtains control over another entity. The
regulation history behind accounting for business combinations arose in 1970 with APB Opinion
No. 16, which permitted the purchase method as well as the pooling of interests method. In an
attempt to instill full fair values into business acquisition accounting, SFAS 141(R) and 160 were
issued by FASB during 2008. SFAS 141(R), which prescribed the acquisition method for exclusive
use, provided greater transparency and a greater understanding of financial statements for users.
Based on the current research and discussion of some of the pros and cons of the two
methods, we conclude that the acquisition method of accounting for business combinations is
superior to the purchase method. The use of the acquisition method provides more complete,
relevant, and understandable information for financial statement users. Additionally, the
application of the fair-value principle represents a convergence with the principles-based
accounting prescribed by IFRS. It is believed that the adoption of the acquisition method is just
the first of many changes in an effort to bring GAAP in line with IFRS; and we believe that it is a
step in the right direction.