Q> In the context of a current, well publicised merger discuss:
A)the accounting issues that management would have to consider. You should make reference to statute and standards.
B)From a shareholder perspective, the difficulties a proposed merger may encounter.
When a merger takes place between two entities the management of these companies must face the task of adjusting their accounting methods to deal with the fact that they now manage a new entity. In order to discuss the accounting issues of a merger, the term merger must first be defined. In FRS6 the Accounting Standards Board defined a merger as a "business combination that results in the creation of a new reporting entity formed from the combining parties, in which the shareholders of the combining parties come together in a partnership for the mutual sharing of the risk and benefits of the combined entity, and in which no one party to the combination in substance gains control over any other, or is otherwise seen to be dominant, whether by virtue of the proportion of its shareholders rights in the combined entity, the influence of its directors or otherwise".
When two companies come together the management must decide if they meet these criteria. In effect they must determine if the combination is in fact a merger or an acquisition. The simple way of looking at this is: A+B=C this is a merger as a new reporting entity is formed however if the case were A+B=A this would be an acquisition as one company remains dominant and no new entity is formed. For example, when the Bank of Scotland and Halifax came together HSBO, a new entity, was formed. It was therefore evident that a merger had taken place. It is very important to distinguish between these two methods of business combination...