The recent release of new lease accounting rules by the
Financial Accounting Standards Board and the International
Accounting Standards Board significantly impacts public and private
companies. These changes also influence the accounting and
negotiations of mergers and acquisitions.
FASB's ASC 842 — Lease Accounting Standards Update No.
2016-02—changes how companies report assets and liabilities
within their financial statements. For example, one of the purchase
price elements of an M&A transaction is the target's
working capital, which, exclusive of cash and seller-assumed
short-term debt, is typically calculated by subtracting current
liabilities from current assets. In setting the expected working
capital that will be transferred along with the target at closing,
the parties will agree to a "peg," typically derived from
an average of the target company's historical balance sheets,
using somewhere between a trailing 12 and trailing 24 months from
the most current
