Dennis R. Beresford is a former FASB chairman, who served as chairman of the board from 1987 to 1997.

Members of the Financial Accounting Standards Board, the group charged with setting standards for financial accounting and reporting, have proposed easing the rules on accounting for goodwill for acquisitions already on the books.

At its Dec. 20 meeting, the FASB proposed that goodwill recorded from acquisitions completed before the board issues its final statement on business combinations should no longer be amortized, or expensed against earnings annually over a period of up to 20 years, as originally proposed. Instead it would be reviewed for impairment: written down and expensed against earnings only in the periods in which the recorded value of goodwill is more than its fair value.

This Wednesday's proposal comes on the heels of a similar proposal announced Dec. 6 that would also require use of a nonamortization approach to account for purchased goodwill. That proposal would apply to acquisitions made after the final statement is issued. The Board will issue that proposal for public comment during the first quarter.

If both proposals make it into the final statement, all goodwill would be accounted for using an impairment approach. That marks a major departure from last September's controversial proposal to eliminate the pooling-of-interests method of accounting for acquisitions and shorten the period by which companies can amortize goodwill from forty to a maximum of 20 years.

The business combinations project, specifically the Board's efforts to eliminate the pooling method, has drawn backlash from some members of the business community, especially large corporations, who argue that the end of pooling would stifle mergers.

Unlike pooling, where two companies simply combine their balance sheets, the purchase method, the method by which all business combinations would be accounted for if pooling is eliminated, requires that the acquiring company takes a charge known as goodwill, which is basically the difference between the price paid and the fair value of the acquired company's assets. But when there are a significant amount of intangible assets involved, goodwill charges can hurt earnings.

Dennis R. Beresford, former FASB chairman and executive professor of accounting at the University of Georgia's Terry College of Business, who served as chairman of the board from 1987 to 1997, strongly favors this week's proposal, which he says will provide investors with better information. It is also likely to be much more acceptable to members of the business community.

Under the current rules, Beresford explained, the pooling and purchase methods are very different. "The pooling method allows companies to underreport the values of what they paid and what they really acquired," he said. The aim of the changes is to achieve more consistency.

In the four years since it began the business combinations project, the board has spent a significant amount of time looking at the issues surrounding goodwill, according to Beresford. A major concern was whether a method for measuring impairment that was applicable could be developed. In its announcement two weeks ago, FASB chairman Edmund Jenkins said that the board had determined that an operational impairment approach for goodwill could be developed.

Details on each of the tentative decisions made on the goodwill impairment approach are available on the FASB Web site, www.fasb.org.

Next month, the FASB will tackle the issue of whether to retain the pooling method. The board hopes to issue a final statement on pooling and accounting for goodwill and other purchased intangible assets in the second quarter of 2001.

If in fact a final statement is issued during the second quarter, the project will be completed just shy of five years. Considering the due process involved, Beresford noted that, "in terms of FASB projects, this one's moved at the speed of light."

-- SmartPros News Staff

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