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Strategies & Market Trends : MARKET INDEX TECHNICAL ANALYSIS - MITA
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To: Louis V. Lambrecht who wrote (5373)11/30/2000 7:14:01 AM
From: Wyätt Gwyön  Read Replies (1) of 19219
 
Next year, mergers will have to be accounted by the "purchase accounting" method and amortized over a certain period of time.
= increase debt (buying a company) and increase losses (amortize the cost of buying over several years).

No, purchase accounting will not increase debt at all. It has nothing to do with cash flows. It is all about whether to amortize goodwill, a noncash item. The FASB and their supporters have gotten religion about this issue and are unlikely to back down. They believe acquirers are fooling the public by making billions of acquired intangibles disappear like magic. The problem I see is that the accounting profession does not have a modernized conceptualization of intellectual property and other brain-related assets that make up the value of many new-economy companies. Since they can't point a finger at it (like tangibles), they say it's just goodwill and must be written off, which is a penalty to the acquirer. But in fact intangibles account for the majority of the value in knowledge-based companies such as MSFT.

I think the FASB will get its pound of flesh, but it won't matter. Tech cos. will just issue pro-forma numbers that back out goodwill amortization, and will train analysts to follow these numbers. I doubt the "world as we know it" in high tech will come to an end.
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