Pooling to Become History as FASB Makes Changes

Article excerpt

In May, FASB announced it was close to replacing long-standing guidance with new statements that would require companies to change their accounting for goodwill and intangible assets acquired in business combinations.

By the end of June, the board was to have voted on two final statements, Business Combinations and Goodwill and Other Intangible Assets. Expected to gain board approval, this guidance will, when issued, supplant APB no. 16, Business Combinations (1970), and APB no. 17, Intangible Assets (1970), which, respectively, addressed accounting for business combinations at the time of acquisition and thereafter. The two new statements will forbid some practices permitted under APB nos. 16 and 17.

The first statement--on business combinations--will require use of the purchase method for all such transactions initiated after June 30, 2001. (Generally, a merger or acquisition is "initiated" when those participating in it announce the terms of their agreement; a deal is "completed" when a stock swap or cash payment takes place.) This will effectively ban the pooling-of-interests method of accounting, which permitted companies to record assets at their historic book value. The purchase method requires that assets be recognized, initially, at the price for which they were acquired.

The second statement--on goodwill and other intangible assets--will end amortization of goodwill and certain intangible assets. …