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VOLUME 1
SFAS 141(R) Standard —
Quantifying Environmental Liability
by Andy Patz
As of December 15, 2008, a new SFAS standard will increase the cost and level of effort during environmental due diligence. SFAS 141(R) creates major changes in the accounting for M&A related transactions, and requires environmental issues be immediately quantified to better establish their impact on the value of the deal. Previously, environmental liabilities were not typically recorded until a dollar amount was probable and estimable. Under SFAS 141(R), the value of acquired contingencies (e.g. environmental issues, litigation, warranty payouts) must be estimated on the acquisition date (Day 1). This approach will increase the importance of thorough environmental due diligence during M&A efforts and require that environmental liabilities be quickly and accurately quantified.
Notable features and impacts of SFAS 141 (R) include:
- Quantifying your environmental risks are front-burner issues, given the potential impact upon
the value of the deal, including potential goodwill gain recognition with bargain purchases.
- For valuation purposes, the measurement date is now the closing date, as opposed to when
the deal was announced. This complicates deals that are fully or partially funded by stock.
- Acquisition costs (e.g. transaction costs and restructuring charges) are expensed immediately,
and no longer capitalized and amortized.
- Joint Ventures are not subject to the standard.
EHS Support’s proprietary environmental liability model allows our staff to provide fast, accurate, and reproducible liability estimates that allow you to get your deal completed, profitably! Call us today for a broader discussion on how this standard impacts your business.
[1] Patz, A and Ogilvie, K. (2008). December 15, 2008 – A new SFAS standard will increase the cost and level of effort during environmental due diligence.
To read about updates on SFAS 141(R), please visit our Alerts page.
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