By Brian Asmus, Special to The China Post
TAIPEI, Taiwan — Paul Thurston, managing director of Deloitte & Touche Taiwan, spoke to a gathering of international CEOs, CFOs, controllers, investment bankers and tax lawyers at an American Chamber of Commerce Tax luncheon held at the Sherwood Hotel in Taipei Tuesday. According to Thurston, newly revised regulations are going to have a major tax impact on business contemplating mergers and acquisitions. “In December 2007,” explained Thurston, “the Financial Accounting Standards Board (FASB) revised accounting on SFAS No. 141, Business Combinations, and issued SFAS No. 141R (revised).” SFAS 141R, he said, retained underlying concepts of SFAS 141 in that, “All business combinations are still required to be accounted for at fair value under the acquisition method of accounting, but SFAS 141R changed the method of applying the acquisition method in a number of significant aspects.” With SFAS 141R now finalized, companies contemplating mergers and acquisitions need, he stressed, to understand these changes and their impact on financial reporting under U.S. GAAP. “Are you aware that the rule has significant valuation implications on corporate strategy and implementation?” he asked. A major change that the new standard imposes, said Thurston, is how to measure contingent considerations, implications for acquisitions of less than 100 percent, and dealing with acquisition-related costs and contingent liabilities. “This is going to have an immediate and ongoing valuation-related impact on financial statements and disclosures.” The key points, he added, are that balance sheets will be grossed up because of new items that have to be valued, namely liabilities. “All of this is going to change,” said Thurston, “but the question becomes how.” More items will also be going through income statements, he said. “Previously, many of these items may have been capitalized as part of the deal as acquisition costs.” The third is increased volatility to income statements. “Companies are going to need to continue measuring liabilities even after deals are completed,” he emphasized. Ultimately, all of these revisions will require that companies engage in major new efforts on the valuation side.
On the plus side, there will be benefits. “From the user perspective,” said Thurston, “there will be more transparency. Previously, there were lots of hidden items as liabilities were not valued or not valued correctly. Many costs that were deferred will now have to run through the profit and loss statement when incurred.” According to Thurston, the revisions were areas that had long been considered desirable by regulators. “The reason that they were not implemented immediately in 2001, during the first phase, was because there were already so many other changes. The agencies involved did not have the time to address these.” He also noted that the new standard aligns itself nicely with the International Financial Reporting Standards No. 3 (IFRS3). In contrast, he pointed out that the standard in Taiwan is not as detailed. “There is a lot left to best judgment in Taiwan,” he said. “The liability side is not as fully defined, and there is really no fair-value concept.”