CORPORATE ACQUISITIONS got a little easier

CORPORATE ACQUISITIONS got a little easier

February 01, 2001

CORPORATE ACQUISITIONS got a little easier.

The Financial Accounting Standards Board voted unanimously on January 24 to bar future use of the “pooling-of-interests” method of accounting for business combinations. In the future, all mergers and acquisitions will have to use purchase accounting. The difference is a buyer using purchase accounting must ascribe the premium paid above hard asset value to goodwill.

FASB proposed earlier that the goodwill value had to be amortized for book purposes over a period no longer than 20 years. Such deductions would reduce earnings. The proposal set off a firestorm of protests.

When FASB reaffirmed its decision in late January, it said it would no longer require that goodwill be written off, except to the extent that the goodwill actually loses value in a year. This “impairment” approach to writing off goodwill should help ease the pain from having to use purchase accounting.

FASB is expected to release more details in mid-February.

Keith Martin