Ratios that will be affected by the adoption of FAS 141R and FAS 160
The use of FAS 141R would result in a change in several ratios. The first ratio to change would be the value of assets and liabilities. Formerly they were valued according to the parent ownership percentage while in FAS 141R, they are assessed according to the current market value (James, 2010). This implies that a rise or a drop in the market value would result in changes in the ratios. The NCI valuation ratios would also be affected. The NCI was formerly valued by calculating the book value of book assets and subsidiaries by the percentage. Still, with the current change, this valuation is calculated by the fair market value and not the book value (James, 2010). This valuation implies that a decline or rise in the market value will directly affect the ratios. The acquisition in stage rates would also be affected. Initially, they were measured at the time when individual equity was acquired with the new recording they are estimated at the time when the acquiring company got control of the equities (James, 2010). In case there are differences between these periods, then the ratios reported will be different.
Impacts of the Changes on the Company’s Growth and Acquisition Process
The change from FAS 160 to FAS 141R and the expected changes may have some impacts on a company’s growth and acquisition processes. The first change that results in effects is the valuation of assets and liabilities. Initially, assets and liabilities were calculated according to book value, while the recent changes calculate according to market value (James, 2010). Companies will adapt their acquisition of assets and liabilities depending on the prediction of a rise or fall of the asset value in future. In cases where assets value increase in several companies will benefit and grow, but if the value of assets declines in future, the company’s growth will be delayed. In cases where liabilities increase in market value, this will affect the company negatively, but if liabilities decrease in market value, then the company will reap benefits and growth. The acquisition of equities is another issue that is influenced by these changes. Equities were formerly measured from the time of purchase, but currently, they are measured from the time of control (James, 2010). Companies will have to adjust their process of acquiring equities for their benefit.
Reasons for Using FAS 141R and FAS 160
America was using Generally Accepted Accounting Principles (GAAP) for reporting financial statistics. This method, however, had lots of differences from the International Financial Reporting Standards (IFRS). Many nations commonly used IFRS around the world. America was in the process of considering shifting from the use of GAAP to the use of IFRS, which was the new trend that had international standards. The use of FAS 141R and FAS 160 was a step to try and bridge the differences between the GAAP and IFRS (James, 2010). The two were being used in the meantime as America considered a full shift to IFRS.
Qualifying SPEs
Qualifying SPEs are those that meet certain conditions. The first condition is that the SPE’s direct activities should be in a position to absorb its gains and losses through its ability to direct its activities. The second condition is that the SPE should possess high performance, and lastly is the capability to absorb its loses and its benefits from the gain it makes. SPEs are under FASB, and that explains why it can set conditions for SPEs. The impact of FAS 166 in the qualification of SPEs is that it raises standards for the qualification of SPEs. It plays a massive role in determining those SPEs that can get consolidated.
Changes of IFR to a Company’s management
The first change that the management of a company will incur in IFR is in the definition of control. In GAAP, control was supposed to control financial interest, and the power to govern economic polices (James, 2010). The managers should be ready to manage finances through policymaking in IFR. The other change is about IFR is that shares that are considered when determining control may also include exercisable shares. This change is likely to influence the power and choices of a company. The other difference regarding goodwill is that under IFR ii only attributes to controlling interest and does not include the shares attributed to NCI. These changes may change the whole course of power and decisions in a company.
The principle difference between IFR and GAAP
The first significant difference between IFR and GAAP is about control power. The IFR focuses on the ability to govern financial and operating policies, unlike GAAP, which focuses on economic interest. The second difference is in the calculation of non controlling interests. The IFR calculates them with the fair value and with the cost of identifiable assets while in GAAP, it is counted by the share of net assets and goodwill.
References
James, M. L. (2010). Accounting for business combinations and the convergence of international financial reporting standards with the US generally accepted accounting principles. Journal Of The International Academy For Case Studies, 95-108.