"I would certainly expect that we'll have to clean up some areas where people may not have understood exactly what we meant, and be a little more exact," said Kim Petrone, FASB project manager. "On another level, I think that some people might like us to change the model to make it easier to implement or have brighter lines or something like that."

Others who participated in the conversation were Phillip Livingston, president and chief executive of FEI, John Deming, partner at KPMG Consulting and a member of FASB's business combinations task force, and Peter Bible, chief accounting officer at General Motors and chair of FEI's committee on corporate reporting -- business combinations committee.

The four experts reviewed the technical aspects and requirements of the exposure draft, which calls for goodwill to be unamortized in mergers and acquisitions but to be reviewed for impairment. The limited scope ED is a radical departure from an earlier FASB proposal that called for amortization over 20 years and which was widely criticized. The shift opens the way for the elimination of the pooling method of accounting and the general adoption of the purchase method.

Much of the discussion was aimed at clarifying how to allocate goodwill and all assets and liabilities to one or more reporting units at the acquisition date. The reporting units will have to reflect the way business is managed and the way the entity is organized for internal reporting purposes.

The reporting units, Deming explained, should be the lowest level of an entity at which operating plants are prepared and operating profitability is measured. That would normally be at a lower level than a reporting segment level described in FASB statement 131 and would not be at a higher level. The amount of acquired goodwill to be assigned to a reporting unit would be determined in a manner similar to a purchase price acquisition for an entire company.

Bible expressed the concern of a company that acquired a great number of companies every year in countries around the world. "The Board has given us kind of a rough definition of what they would consider that [reporting unit] to be," Bible said in the teleconference. "But like so many things, the ability for somebody to come back and second guess a judgment that's made in this area is always problematic, both from a preparer's standpoint, and I think from an auditor's standpoint, too."

Deming pointed out that one of the initial thoughts of the FASB staff was to require an annual impairment review. But after re-deliberating the issues, he said, the staff recommended a trigger-based approach.

The ED requires that a company prepare a mandatory benchmark assessment, which would require quite a bit of documentation. The benchmark assessment ensures that an entity develops and documents its process for performing future impairment tests.

Deming also explained that under the requirements of the ED, the fair value of a reporting unit is the amount for which the whole unit could be bought or sold between willing parties. This amount would not necessarily equate to the sum of the fair value of the individual assets and liabilities within that unit. The market capitalization of a reporting unit with publicly traded stock may not be representative of the fair value of the reporting unit as a whole.

The two-dozen professionals who called in generally had technical questions rather than opinions.

"We had a couple of people who said, 'Wouldn't it be easier to write goodwill off?' but our purpose was to get people to better understand what's in the ED and to address any questions they had," Petrone said. "My goal was to help people better understand it so that they can write more meaningful comment letters."

The full transcript and audio recording of the teleconference are on FEI's Web site at www.fei.org, and the ED is available at FASB's Web site, www.fasb.org. Comment letters are due by March 16, 2001.

-- SmartPros News Staff

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