Question

Distinguish between “changes in accounting entity”, which are covered in ASC 250, and accounting changes after acquisitions, which are covered in ASC 805 “business combinations.”

Answer 1

Change in accounting entity or reporting entity is covered under ASC 250-10-20 and it covers changes like:

• preparing consolidated accounts after acquistions instead of individual entities accounts
• Changing specific subsidiaries that make up the group of entities for which consolidated financial statements are presented;
• Changing the entities included in combined financial statements;

However, for every change, entity has to disclose the reason for the change and the effect of the change on profits.

Accounting changes after acquisition covers changes like:

• each assets and liabilities be recorded at fair market value
• intangible assets not recorded earlier to be recorded too