Acquisition accounting: SEC closes the GAAP. (Securities and Exchange Commission)

The Securities and Exchange Commission recently completed an investigation focusing in part on the acquisition accounting practices of Meris Laboratories, a California company. Michael M. Mulligan, CPA, a senior attorney in the SEC Division of Enforcement, Washington, D.C., explains the SEC's actions are important because they show what the SEC considers to be the limits on capitalizing costs connected with an acquisition under Accounting Principles Board Opinion no. 16, Business Combinations.

Meris Laboratories engaged in several acquisitions over a two-year period; costs capitalized in connection with those acquisitions were significant. The SEC ultimately determined Meris's acquisition accounting was improper and on September 26, 1994, announced administrative proceedings against the company and two of its officers. The SEC accepted settlement offers from all respondents, which allowed it to issue an SEC order making findings and ordering the respondents to cease and desist from further such violations.

ACQUISITION

CAPITALIZATIONS

Paragraph 76 of Opinion no. 16 says entities that engage in purchase acquisitions may include certain associated costs in the acquisition price, thereby capitalizing the costs rather than deducting them from income as an expense in the …