What Effect Will the New Revenue Recognition Standard Have on M&A?
The Financial Accounting Standards Board's new revenue recognition standard is expected to have wide-ranging effects on M&A transactions. The new revenue recognition standard under GAAP will be applicable to public companies for annual reporting periods beginning December 15, 2017. Thus, the impact of the new standard should begin to be assessed for public company transactions that are negotiated in the fall of 2017. For private companies, the new standard will be effective a year later, for annual reporting periods beginning after December 15, 2018.
We have published a summary on Dodd-Frank.com of the effect of the new accounting standard on M&A transactions. The summary discusses the impact of the new standard on:
- Business valuations and valuation metrics
- Financial forecasts and projections
- Working capital adjustments
- Earn outs
- Due diligence
- SEC registration statements
- Loan covenants
The summary also discusses the impact of the new standard on representations and warranties in acquisition agreements, and offers sample representations for use by companies before and after the transition.