Magazine article American Banker

Finance Execs Warn against Pooling Ban

Magazine article American Banker

Finance Execs Warn against Pooling Ban

Article excerpt

A plan to ban pooling-of-interests accounting for mergers and acquisitions threatens the economy in general and the financial services industry in particular, a trade group for finance executives warned Tuesday.

In a letter to the Financial Accounting Standards Board, the Association for Financial Professionals called on chairman Edmund L. Jenkins to abandon the proposed change.

Citing a survey of 200 members in senior accounting positions, the group -- until recently called the Treasury Management Association -- claimed that the financial services, communications, and technology industries would be the most notable victims.

"Companies in these industries are some of the most dynamic and productive in our economy," wrote Patrick M. Montgomery, chairman of the group's government relations committee, and James R. Haddad, chairman of its financial reporting, accounting, and investor relations task force.

"We believe that imposing a requirement to use purchase accounting in business combinations would be particularly detrimental to these companies and may have the unintended impact of impeding economic growth in the United States."

Under the pooling-of-interests method, a merger is accounted for by combining the book value of the two companies involved. The purchase method, by contrast, requires the acquiring company to determine the fair value of the assets and liabilities of the company being acquired and to subtract that amount from the price paid. The difference is called "goodwill" and must be written off over a specified period. …

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