Accounting for Combinations of Nonprofit Hospitals After SFAS 164: Has the FASB Achieved its Objectives?

Abstract

In 2009 and 2010, the Financial Accounting Standards Board (FASB) adopted new accounting standards for nonprofit mergers and acquisitions. The FASB’s goals included reducing “pooling” accounting, providing more fair value information, recognizing more acquired identifiable intangible assets, and better reflecting the inherent contributions contained in many combinations. FASB expected that many combinations would involve little or no consideration paid. It expressed concern that some organizations would undervalue assets acquired, especially intangible assets. This study examines a sample of 2012-2017 nonprofit hospital acquisitions to compare practice with the FASB’s expectations. In our sample, almost all nonprofit combinations were accounted for as acquisitions, not mergers. Frequently, no consideration was paid. More acquirers recorded inherent contributions than goodwill. Finally, a lower level of intangible assets was recognized in nonprofit business combinations, relative to total non-goodwill assets acquired, than in acquisitions by public companies.