Discuss About The Development Current In Accounting Thought

Eide Bailly acquires top 100 CPA firm in Utah, Hawkins Advisors

Question:

Discuss About The Development Current In Accounting Thought?

The article written by Michael Cohn published in Accounting Today on September 11, 2017 highlights upon the expansion plans of Eide Bailly LLP, which is included under the leading 100 CPA firms located in Utah, a state in western part of the United States. Eide Bailly is looking forward to acquire a small CPA firm, named as Hawkins Advisors effectively on 30^th October 2017 (Cohn, 2017). The main headquarter of Eide Bailly is located in Fargo, N.D. along with branches in Ogden, Utah and Lehi, Salt Lake City (Cohn, 2017). It was mentioned that after the completion of the deal, the company will result in making Eide Bailly the biggest CPA organization in Utah considering the total number of staff (Eide Bailly, 2017a). Additionally, financial terms with respect to the deal were not disclosed yet. Moreover, Eide Bailly has merged with other since last year including Langenhorst & Self-Merritt CPAs P.S., Daines Goodwin & Co, JW Advisors and Bryce Wisan’s CPA practice along with adding Rauch Hermanson & Everroad Ltd. in their organization (Eide Bailly LLP, 2017). The objective of this study is to provide an in-depth theoretical understanding of the article present by Cohn (2017) for assisting the company to engage themselves efficiently in the upcoming future.

The article review is briefly focused on the situation, which highlights merger and acquisition process considering the accounting principles along with standards. Merger and acquisition is an essential part of corporate finance, as it helps the business to grow successfully. Merger is a strategic tool helping two or more companies to combine and form a single large organization, where one company will gain the ultimate power and the other will lose its corporate existence (Kansal & Chandani, n.d.). Multinational corporations are focusing on mergers and acquisitions up to higher levels, which will lead to achieving organizational growth. Mergers are often considered as a value maximizing initiative, which assits in increasing the shareholder’s wealth as well as financial synergy (Cartwright & Cooper, 2014). Additionally, acquisition is the process, where a bigger organization takes complete control of the smaller organization. Hence, merger and acquisition refers to the integration of two or more organizations aligned with diverse cultures, values, forces and converts them into a single cohesive unit. Moreover, mergers can be of two different types including horizontal merger and vertical merger (Kansal & Chandani, n.d.; Andrade, Mitchell & Stafford, 2001).

Theoretical framework of merger and acquisition

Horizontal merger can be defined as an involvement of organizations working in the same field, whereas vertical mergers are those where the field of works differs considering both the companies. Merger is a long process, which significantly requires extensive support from both the organizations for the proper development of business. There are few factors, which are necessary for maintaining the balance between the merged organizations due to the difference in cultures and will, as they can have potential impacts on the operations. Therefore, the factors influencing the organizations during mergers and acquisitions include system dynamics, person-focused change, structure-focused change, government policies along with profitability issues (Kansal & Chandani, n.d.; Roundy, 2009). In addition, a merger cannot be successful, if only judged from a financial perspective. Active involvement of both the companies into one is necessary for smoother transition process of the business. Some of the additional challenges faced during the transition process are stress management, cultural management, HR restructuring, job insecurity, resistance towards change, redundancies, low motivation as well as talent drainage among others (Kansal & Chandani, n.d.; Ferreira, Santos, de Almeida & Reis, 2014). Furthermore, there are few reasons behind the failure of merger and acquisitions, which includes lack of proper communication, support along with lack of confidence on each other, frustration and confusion. It also includes forceful habit, loss of competency as well as fear of working with new set of individuals aligned with different behaviors. Therefore, it becomes necessary for the leaders to manage the situation along with bringing it to normal. Therefore, leaders can focus on overcoming the situation of resistance to change through planning and implementing strategies. Some of these strategies include clear vision, integration plan, employee involvement, customer focus and understanding the differences in culture and downsizing. These strategies will ensure successful implementation of the merger and acquisition processes (Kansal & Chandani, n.d.; Roundy, 2009).

Applying the theoretical concepts of merger and acquisition, it is clearly explainable that Eide Bailly, being a larger organization is acquiring the Hawkins advisors, which is a smaller in size. Here, it is evident that a horizontal merger will be taking place between Eide Bailly and Hawkins Advisors as both works under the field of accounting practice, commonly known as Certified Public Accounting (CPA) firm. Both the companies may have different cultures, but the field of work is same. Here the acquisition will not be forceful as Hawkins Advisors have agreed to the offered presented by Eide Bailly.Hawkins Advisors has mentioned that they will benefit by merging with Eide Bailly, as joining them will help in delivering world-class services for the existing businesses along with the in Utah. Eide Bailly will have to take essential steps to motivate the partners along with the staff of Hawkins Advisors for joining their company (Kansal & Chandani, n.d.; Cohn, 2017).

FASB Exposure Draft on stock compensation

Moreover, it was mentioned that the viewpoint considering financial aspects is not important, as compared to their active involvement. Here, the acquisition will not provide financial benefit to Eide Bailly to achieve high level of profit, but it will definitely assist the company to become the leading CPA organization in Utah considering the amount of team members. At the current stage, Eide Bailly comprises of 169 partners along with members. The acquisition of Hawkins Advisors will bring additional 8 partners as well as 58 staff. Hence, the strategy of merging will be effective, only if Eide Bailly and their partners use their ability to manage the workforce along with motivating them. Merger will take time, but Eide Bailly need to capitalize the situation and start planning for the new workforce, who are the future assets of the organization (Kansal & Chandani, n.d.; Cohn, 2017).

After analyzing the theoretical framework of merger and acquisition, the acquisition Hawkins Advisors can be viewed as a fruitful decision for Eide Bailly considering the similarities in culture and the field of work. Being a service industry, Eide bailly has provided quality services to the clients, as they primarily focus on customer satisfaction. Horizontal Merger between the two companies will bring additional human resources as well as innovative ideas along with opinions, which will help Eide Bailly to grow as the leading organization in Utah. This will help in enhancing the business in terms of providing world-class service along with maximization of profits. Conclusively, Eide Bailly should agree to the deal at a confirmed price with Hawkins Advisors as soon as possible, which will provide surety of the merger.

The article provided by FASB as on June 5, 2017, the key issue covered in the exposure draft of Financial Accounting Standards Board (FASB) is related to stock compensation. FASB issued this update as proposed by the companies to take an initiative for simplifying accounting activities. The key objective of the simplification initiative was improving as well as maintaining the effectiveness of the provided information to the financial statement users. This will help in the reduction of cost and respective complexities aligned during financial reporting (FASB, 2017). Various aspects were updated for the transactions with respect to share-based payment for acquisition of goods as well as services from the non-employees. Topic 718 of the compensation, specifically the stock compensation is the key focus of proposed update. The requirement of topic 718 was focused on the non-employee awards keeping the model of option pricing and input related to it, in addition to cost attribution as exception (PWC, 2017). Furthermore, the awards related to share-based payments for the equity-classified non-employees would be assessed on the grant date. Here, the definition of grant date would be changed in general, as the grantor and grantee agrees to a mutual understanding with respect to terms and conditions, considering awards of non-employee share-based payments. The transactions related to same will be amended and accordingly assessed through specific estimation of equity instruments’ fair value (FASB, 2017; PWC, 2017).

Regulators are the advocates, who look after public interest and measures= the purpose for achieving certain desired results accordingly. This becomes impossible to attain, if the activity is kept aside depending upon the market. Adequate behaviors are necessary under Generally Accepted Accounting Principles (GAAP) for the amendments in transactions taking place through shared-based payments. The decision on amendments by the regulators of the accounting body FASB was taken based on the required changes by the public firms. The amendment in shared-based payments for the goods as well as services from the non-employees will help in earning benefit by selling any instrument. It will ensure the measurement of its value at a fair value estimated and the firm will be obligated for issuing it during the delivery or rendering of both goods and services in any condition. Additionally, the probability related to performance conditions will be satisfactory considering the conditions in transactions related to share-based payments by the non-employees. Moreover, any non-public firm will be able switch from the measurement process of awards related to share-based payments. This is done by the liability-classified non-employees at its fair value to the intrinsic value (FASB, 2017; Gaffikin, 2005).

The comment letter number 14 by Ball Corporation responded in agreement of the amendments made by the FASB considering shared-based transactions. They agreed that the overall amendment will ensure reduction in both cost and complexity of the financial reporting due to their close alignment of non-employee with employee shared-based accounting with respect the stock compensation. Additionally, measurement of the issued equity instruments at its fair value on grant date is agreed. Probability related to performance conditions was asked to be reassessed periodically. Moreover, agreement in vested share-based payments, forfeiture guidance, accounting guidance was responded in the comment letter (Ball Corporation, 2017). The For instance, the comment letter number 18 of Alphabet Inc simply agreed upon the FASB’s initiatives with respect to the simplification of requirements in the accounting processes of share-based payments. They believed that the amendment will reduce the overall complexities along with the cost (Alphabet Inc, 2017). With respect to the comment letter 8 of FICPA, it disagrees on the amendments proposed by the FASB. This was considering shared-based payments as their committee members were uncertain regarding the reduction in cost and complexities, which was the intended goal of the board. They mentioned that the removal of fair value considering goods as well as services and determining the same on equity instrument by the organization itself, will be burdensome considering the cost along with complexities (FICPA, 2017). The fourth and the final comment letter number 17 of Pacira Pharmaceuticals Inc, agrees on the proposed amendments for simplification along with clarification in share-based payments accounting related to non-employees. Additionally, the firm responded that awards for employees as well as non-employees accounting based upon the performance should not be diversified. Equity award does not require any comparison on its grant for a non-employees or employees. They believed that shared-based payments considering employees as well nonemployees should be similarly assessed. Moreover, separate disclosure is not necessary for the users considering their financial statements in shared-based payments (Pacira Pharmaceuticals Inc, 2017).

The comments letter mentioned in the above paragraph denotes that the agreement for amendment proposal of the FASB by three organizations including Ball Corporation, Alphabet Inc and Pacira Pharmaceuticals (Ball Corporation, 2017; Alphabet Inc, 2017; Pacira Pharmaceuticals Inc, 2017). The only firm disagreeing upon the decision was FICPA, which was against the exposure draft by FASB (FICPA, 2017). Agreement of three companies included the amendments proposed, considering the share-based payments of the goods as well as services from the non-employees will help in reducing the cost and complexities of the financial reporting leading to better results in the future. All the three companies agreed upon the decision responded the same answers respectively (Ball Corporation, 2017; Alphabet Inc, 2017; Pacira Pharmaceuticals Inc, 2017). However, FICPA believed that common practices in markets including public entity as well as non public firms for investors along with shareholders will exclude expenses related to equity compensation. Additionally, limited focus will be placed on financial statement related to equity compensation, where footnote disclosures are quite voluminous. Therefore, FICPA and its committee members disagreed on the fact (FICPA, 2017).

Theory of Public interest is referred as the regulation initiated by the government considering the public demand as a whole for the purpose of amending any market practices, which are inequitable or inefficient for the organization (Gaffikin, 2005; Martins, 2009). With respect to the theories of private interest in concern, general people combine themselves into groups for pursuing their self-interests. Here, regulatory processes follow private interest rather than public interest and dominate the situation, where instances of wealth or power are considered for any amendment. Besides, the theory of regulatory capture is the situation, where authoritarian bodies act for public’s interest and are enforced for providing benefits to different industries (Martins, 2009).

After analyzing the entire study and the amendment proposed by FASB along with the comments letters from four different respondents, theory of public interest provides the best explanation of the amendments. The amendment proposed will help both non-employees as well as the organizations to reduce cost along with complexities and maximize their profits by transacting share-based payments. Hence, majority of the respondents in the comments letters agree to the decision of shared-based payments (FASB, 2017).

References

Alphabet Inc. (2017). Comment letter No. 18. Retrieved from https://www.fasb.org/cs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1175835051328&blobheader=application%2Fpdf&blobheadername2=Content-Length&blobheadername1=Content-Disposition&blobheadervalue2=660622&blobheadervalue1=filename%3DNESBP.ED.018.ALPHABET_INC._JOSH_PAUL_KELLY_HERELD.pdf&blobcol=urldata&blobtable=MungoBlobs

Andrade, G., Mitchell, M. L., & Stafford, E. (2001). New evidence and perspectives on mergers. Journal of Economic perspectives, 15(2), 103-120.

Ball Corporation. (2017). Comment letter No. 14. Retrieved from https://www.fasb.org/cs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1175835049754&blobheader=application%2Fpdf&blobheadername2=Content-Length&blobheadername1=Content-Disposition&blobheadervalue2=644511&blobheadervalue1=filename%3DNESBP.ED.014.BALL_CORPORATION_SHAWN_M._BARKER.pdf&blobcol=urldata&blobtable=MungoBlobs

Cartwright, S. & Cooper, C. L. (2014). Management and acquisitions: The human factor. United Kingdom: Butterworth-Heinemann.

Cohn, M. (2017). Eide Bailly to merge in Hawkins Advisors. Retrieved from https://www.accountingtoday.com/news/eide-bailly-to-merge-with-hawkins-advisors

Eide Bailly LLP. (2017). Eide Bailly expands in Utah. Retrieved from https://www.eidebailly.com/insights/firm-news/2017/eide-bailly-expands-in-utah

Eide Bailly LLP. (2017a). Inspired to be there for you. Retrieved from https://www.eidebailly.com/about-us/locations