The news came as FASB chairman Edmund Jenkins responded to a letter from Sen. Spencer Abraham and 12 other senators regarding FASB's project to improve the transparency of the accounting and reporting for business combinations. The senators wrote to express "reservations about FASB's apparent plan to move ahead with its proposal for eliminating the pooling-of-interest method of accounting'.

Jenkins said: "The current focus of the board's redeliberations involves carefully evaluating all of the alternatives received from constituents about how goodwill should be accounted for." He added: "The board will not begin discussion of that issue [pooling of interests method of accounting] until it has reached a set of tentative decisions with respect to the accounting for goodwill that will best meet the concerns of investors, creditors, and other users of financial statements."

The senators argued that FASB's proposals to eliminate the pooling method will make mergers and acquisitions very difficult for hi-tech companies: "Specifically, the proposal would require companies to write off goodwill as a charge against earnings over an arbitrary period. Because high technology companies often possess large amounts of goodwill, purchase accounting would significantly raise the cost of mergers and acquisitions for technology companies."

"Innovation in the hi-tech sector is the driving force behind America's remarkable economic prosperity. Strategic combinations between technology companies have helped fuel that innovation and growth. In our view, if FASB's proposal is approved, it will almost certainly diminish market innovation," the senators said.

Since first adding the project on accounting for business combinations and intangible assets to its agenda in 1996, FASB has held over 50 public meetings, issued two preliminary documents and the Business Combinations and Intangible Assets statements for public comment, which proposes the elimination of pooling. Instead it proposes that all business combinations be accounted for using the purchase method.

FASB senior project manager Todd Johnson said that the FASB proposal would aid financial comparability. Many commentators also agree that use of the pooling method and the very different purchase method, make it difficult for users to compare financial statements of companies engaging in combinations. Johnson believes the proposal "would be a major step to leveling the playing field internationally."

Use of the pooling method in jurisdictions such as Canada and the UK is limited to combinations deemed to be "true mergers" or "mergers of equals." FASB considered limiting the method's use to such transactions rather than eliminating it, but, according to Johnson, concluded that mergers of true equals are so rare that they may never occur.

Jenkins said that FASB has not set any deadline for completing the project and that "we are certainly not rushing to any final conclusions."

Send comments to information@smartpros.com.

Copyright 2000 AccountancyMagazine.com. Used with permission.