Net Assets Valuation in Transformations of Czech Companies
Net Assets Valuation in Transformations of Czech Companies

Summary/Abstract: The paper analyses the company transformations which represent a specific group of mergers and acquisitions which took place in the Czech Republic in 2013. Based on the statistical sample containing detail data of 115 transformations, we analyzed important aspects of company transformations (M&A) such as accounting method applied, method of net asset valuation and the ownership structure of the participating companies. The research indicates that current regulation of accounting for company transformations in the Czech Republic (and possibly other Central and Eastern European countries) fails to respond to the fact that majority (96 %) of company transformations (M&A) which took place in 2013 in the Czech Republic were in fact corporate holdings reorganizations rather than business combinations as defined by IFRS 3. The option to increase the equity of the successor company from the excess of fair-value over the historical prices during the transformation leads to severe distortion in faithful representation of the financial position of the successor company. Based on these findings, we identify the main risks for the external users of financial statements and suggest potential ways of revision of Czech regulation for company transformations accounting.

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