leave it up to softdick to come up with using pooling of interest to boost earnings...
ASB may outlaw 'pooling of interest'
By DANIEL BOGLER
and WILLIAM LEWIS
The Financial Times
NEW YORK - The top government accounting watchdog is considering outlawing ''pooling of interest'' rules, the
accounting treatment used for most of the recent, large all-stock mergers.
The Financial Accounting Standards Board is also thinking about overhauling the treatment of goodwill, the premium paid
over and above a company's tangible assets.
The new guidelines would form part of an ambitious FASB attempt to overhaul its approach to mergers and acquisitions
and to move to a single method of accounting for business combinations.
Currently, companies can account for an acquisition either as a purchase or, if they satisfy certain conditions, as a
pooling. The advantage of the latter is that it's usually tax-free and does not create any goodwill, which has to be
amortized over subsequent years and therefore penalizes earnings growth.
But both the FASB and the Securities and Exchange Commission have become concerned that companies are stretching
the rules to dress up acquisitions as mergers in order to account for them as poolings.
Poolings have risen from 2 percent of all U.S. M&A transactions in 1992 to 31 percent so far in 1998, according to figures
compiled by Securities Data Co.
Tim Lucas, director of research and technical activities at the FASB, said: ''Not allowing poolings is one possibility. It
would solve quite a few problems.''
A less draconian alternative would be to tighten the rules under which poolings are allowed. But Lucas pointed out that
businesses already have to meet 12 conditions to qualify for pooling, and he doubted whether further hurdles would have
the desired effect: ''Companies and their lawyers are inventive. My suspicion is that any test we devise will come under
pressure.''
At the same time, the FASB is weighing further changes which would allow companies to capitalize goodwill. But instead of
amortizing it as at present, they could maintain its balance sheet value and periodically test it for impairment. This would
avoid depressing earnings and is similar to rules about to be adopted in Britain.
A move to outlaw pooling would undoubtedly upset industry, according to David Kaplan, a Price Waterhouse partner and
its associate national director for accounting services.
''Companies like poolings,'' he said: ''and many structure their business affairs in such a way as to be able to do
poolings. The goodwill changes might mitigate that a bit.''
Lucas emphasized that FASB had not taken any firm decisions yet. The watchdog is hoping to produce a paper outlining
its thinking by the end of the year, with the aim of moving to a new standard by 2000. |
