Accounting question -
What are thoughts on the possibility of "pooling of interest" or "pooling" methods of accounting being eliminated when one company acquires another?
I read this in Red Herring, Feb. 1999 issue. It read that Financial Accounting Standards Board (FASB), which advises the Securities & Exchange Commision, wants to eliminate pooling because it considers the practice "potentially misleading and inconsistent".
I've been through a couple "pooling" acquisitions from the side of the company that acquired another company. It ended up being a charge against current earnings, then some shares were exchanged, and presto ... done deal!!
I look at it this way. To get future business, a company needs to generate new ideas and products to sell. In order to do this, they invest in R&D that hopefully leads to these new ideas. Pooling allows a company to BUY that R&D instead of doing it in-house. This provides the immediate availability of the acquired technology, and it provides the oportunity to ensure the research performed yields useful and valuable products and ideas.
After one company acquires another company it cannot perform a stock split for a certain period of time (somewhere around 18-24 months I believe). I think it may be able to petition for an earlier date, but it can't do so without that permission.
Pooling makes a lot of sense to me, any accounting arguments or ideas on pooling, how it works, why its good/bad would be appreciated.
Regards, JB |
