By John Sullivan (January 9, 2019, 2:55 PM EST) -- As M&A activity in the life sciences industry continues to be strong, driven by big pharma divestitures of off-strategy drugs, buyers hoping to develop acquired products into profitable assets must use significant judgment in applying guidance on the accounting treatment of these M&A transactions. The critical issue that needs to be addressed is: might the acquisition be treated as a business combination under generally accepted accounting principles, or GAAP, but an asset acquisition by the U.S. Securities and Exchange Commission, and what are the consequences? As we discuss below, the application of the guidance in Accounting Standards Codification 805-10-55, or ASC 805, for business combinations can differ significantly depending upon whether the acquired entity is considered a "business" or an "asset." Similarly, SEC Regulation S-X, Article 11-01(d), or SEC Rule 11-01 (d), is the guidance used to determine whether a registrant acquired a business or an asset and consequently whether historical financial statements of the acquired business are required to be filed with the SEC. This article will discuss some of these critical accounting issues related to these acquisitions....