Fall 2009 issue of Horizons

Raise Your Expectations CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS

in determining if they have ceded control to form the new entity. Specific examples in which both organizations did not cede control (and therefore the combination is accounted for as an acquisition) include the following: 1. The governing board and/or officers of the new entity consist of substantially more former board members of one of the combined entities than the other. 2. The operating policies and bylaws of the new entity are carried over from one of the combined entities without substantial change. 3. One of the combined entity’s financial positions is relatively strong, whereas the other entity’s financial position is significantly weak. Generally speaking, accounting for a combination of two or more NPOs as a merger is relatively simplistic, as the pooling of interests method would most likely be utilized under the guidance. In a combination accounted for as a merger, the assets and liabilities of the entities are simply combined at the date of the combination. For example, if NPO A (assets of $1,000,000 and liabilities of $200,000) combines with NPO B (assets of $1,200,000 and liabilities of $250,000) on June 30, 2010, the newly formed entity (NPO C) would consist of assets of $2,200,000 and liabilities of $450,000. Prior to the issuance of SFAS 164, the combined entity that resulted from the “pooling” reported combined operations retroactively (as if the combining entities had always been one organization). If the combination does not meet the criteria of a merger, then the combination is accounted for as an acquisition. Upon determination of the acquiring entity (generally the one in the combination that retains control or is financially “superior”), the assets and liabilities of the acquired NPO are adjusted to fair value on the acquisition date. Additionally, certain intangible assets that may have not been previously recorded by the acquired NPO (i.e., patents, trademarks)

42 u fall 2009 issue