Taxand USA examines tax accounting aspects as well as items to consider in purchase accounting. These items are some of the more common ones that have a significant impact on various tax positions and ultimately the company’s financial statements, yet all too often they are either overlooked or misapplied.
Accounting for business combinations under Accounting Standards Codification (ASC) 805, Business Combinations and the related purchase accounting considerations from an income tax accounting perspective are not for the faint of heart.
When companies go through mergers or acquisitions, we are forced to deal with the mechanics of purchase accounting, including the tax accounting aspects.
A keen understanding of these standards, particularly the income tax accounting components, is paramount in the preparation of your company’s income tax provision for financial reporting purposes.
Gone are the “back-of-the-envelope” income tax provision days, and the many nuances of business combinations and purchase accounting may make you long for such days. Gaining a full understanding of a transaction’s structure and corresponding tax treatment is critical to understanding the tax accounting consequences in a business combinations setting and avoiding misapplying the complex rules of purchase accounting and potentially a restatement.