Interpretation of Comments Letters: Public Interest Theory

Here is a short summary of the assignment content in a paragraph: The FASB has proposed an amendment to its accounting standards update, which was agreed upon by three organizations: Ball Corporation, Alphabet Inc, and Pacira Pharmaceuticals. The amendment proposes to modify share-based payment modifications to simplify the financial reporting process. However, one organization, FICPA, disagreed with the proposal, stating that it may not accurately reflect the company's financial situation. Overall, the proposed amendment aims to provide greater transparency and comparability in financial statements.

1Running head: CURRENT DEVELOPMENT IN ACCOUNTING THOUGHT
Current Development in Accounting Thought
Author’s Name
Institution Affiliation

2CURRENT DEVELOPMENT IN ACCOUNTING THOUGHT
Current Development in Accounting Thought
Answer to Question 1
Overview
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 30th 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.
Related Theories of Accounting
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

3CURRENT DEVELOPMENT IN ACCOUNTING THOUGHT
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).
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

4CURRENT DEVELOPMENT IN ACCOUNTING THOUGHT
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).
Application of Theory
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).
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

5CURRENT DEVELOPMENT IN ACCOUNTING THOUGHT
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).
Summary
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.

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Answer to Question 2
Major Issues Covered in the Exposure Draft
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).
Behavior of the Regulator Considering the Public Interest Theory
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

7CURRENT DEVELOPMENT IN ACCOUNTING THOUGHT
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).
Views Presented in the Comments Letters
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

8CURRENT DEVELOPMENT IN ACCOUNTING THOUGHT
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).
Interpretation of the Comments Letters
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

9CURRENT DEVELOPMENT IN ACCOUNTING THOUGHT
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).
Theories of regulation
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).

10CURRENT DEVELOPMENT IN ACCOUNTING THOUGHT
References
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