Accounting for Combinations of Nonprofit Hospitals After SFAS 164: Has the FASB Achieved Its Goals?
ISBN: 978-1-83867-994-1, eISBN: 978-1-83867-993-4
Publication date: 27 October 2020
Abstract
In 2009 and 2010, the Financial Accounting Standards Board (FASB) adopted new accounting standards for nonprofit mergers and acquisitions. The new accounting standards are an example of the constitutive role accounting can play in how people think about economic events, since the FASB defined a new concept (the “inherent contribution”) and required valuation of intangible assets that were often previously unrecognized.
The FASB’s stated goals included minimizing “pooling” accounting and maximizing transparency regarding fair value information, acquired identifiable intangible assets, and the relation between consideration paid and the fair values of identifiable assets acquired. The FASB expected many combinations would involve little or no consideration. It also expressed concern that some organizations would undervalue assets acquired, especially intangible assets.
For a sample of 2012–2017 nonprofit hospital combinations, we find general agreement with the FASB’s expectations. Almost all combinations were accounted for as acquisitions, not mergers, even though there was frequently no consideration paid. More acquirers recorded “inherent contributions” than goodwill, because the net fair value of the acquired hospital’s identifiable assets exceeded the consideration paid. Acquirers ascribed value to assets, such as intangible assets, that would have gone unreported under the prior accounting rules, although lower levels of intangible assets were recognized in nonprofit business combinations, relative to total non-goodwill assets acquired, than in public companies’ acquisitions.
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Acknowledgements
Acknowledgments
We would like to thank Elizabeth Curtis, Martha Garner, Kim McCarthy, Jeffrey D. Mechanick, Alicia Posta, and Lindsey Roe for helping us to understand the accounting and implementation issues involved in nonprofit mergers and acquisitions. We would also like to thank Cheryl Lehman (editor), two anonymous reviewers, and the conference panel audiences at the Association for Budgeting and Financial Management, Hawaii Accounting Research Conference and AAA Government and Nonprofit Midyear meetings for their suggestions. Finally, we would like to thank Juliana Weiss for her excellent research assistance.
Citation
Searing, E.A.M., Tinkelman, D. and , (2020), "Accounting for Combinations of Nonprofit Hospitals After SFAS 164: Has the FASB Achieved Its Goals?", Lehman, C.R. (Ed.) Resistance and Accountability (Advances in Public Interest Accounting, Vol. 22), Emerald Publishing Limited, Leeds, pp. 59-79. https://doi.org/10.1108/S1041-706020200000022004
Publisher
:Emerald Publishing Limited
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