![]() In contrast to financial reporting guidelines, U.S. Section 754 of the IRC provides similar guidance for organizations structured as limited liability companies or partnerships. Sections 1060 and 338 of the Internal Revenue Code (IRC) detail procedures for completing PPAs for U.S. Subsequent to all transactions that involve a change in control, companies are required to complete a PPA (regardless of whether the transaction is structured as an asset deal or a stock deal) for financial reporting purposes. This recent guidance for private companies is a result of efforts of the Private Company Council (PCC) and resulting FASB endorsements. Under Accounting Standards Update (ASU) 2014-18 and ASU 2014-02, privately held companies have the option to elect certain accounting alternatives related to the recognition and measurement of certain intangible assets (the Intangibles Accounting Alternative) and the amortization and impairment testing of goodwill (the Goodwill Accounting Alternative). In 2014, FASB ASC 805 and FASB ASC 350 were amended in order to provide privately held companies with accounting alternatives aimed at simplifying the accounting and reporting process for PPAs. In the United States, guidance pertaining to completing a PPA is contained in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 805, Business Combinations (FASB ASC 805) and Topic 350, Intangibles – Goodwill and Other (FASB ASC 350). ![]() Although a PPA performed for financial versus tax purposes may be very similar, there are several key differences to understand and consider in a valuation analysis. A PPA is an allocation of the purchase price paid to the assets and liabilities included in a transaction. One common requirement for both purposes is acquisition accounting, that is, a purchase price allocation (PPA). Mergers and acquisitions trigger many financial and tax reporting requirements.
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