NEWS RELEASE 01/24/01
FASB Reconfirms Its Plans to Eliminate Pooling-of-Interests Method of Accounting
Norwalk, CT, January 24, 2001—In continuing its redeliberations of the September 1999 proposed Statement, Business Combinations and Intangible Assets, the Financial Accounting Standards Board (FASB) tentatively decided at today's public meeting to eliminate the pooling-of-interests (pooling) method of accounting for business combinations. All business combinations would be accounted for under a single method - the purchase method. The pooling method would be eliminated following issuance of a final Statement. The Board voted unanimously in favor of this decision.
This is a reconfirmation of the FASB's decision, contained in the proposed Statement, to eliminate the pooling method. The FASB has received many comments on this issue from a broad constituency. Based on thorough analysis and public discussion of those comments, the FASB concluded that the transparency of the reporting for business combinations would be greatly improved if all business combinations were accounted for under the purchase method.
In commenting on today's decision, Edmund L. Jenkins, Chairman of the FASB, stated, "The purchase method, as modified by the Board during redeliberations, reflects the underlying economics of business combinations by requiring that the current values of the assets and liabilities exchanged be reported to investors. Without the information that the purchase method provides, investors are left in the dark as to the real cost of one company buying another and, as a result, are unable to track future returns on the investment."
As part of its proposal on business combinations, the FASB made a tentative decision in December of last year relating to accounting for purchased goodwill that would require a nonamortization approach. Under that approach, goodwill would not be amortized against earnings. Instead, it would be reviewed for impairment, that is, written down and expensed against earnings only in the periods in which the recorded value of goodwill is more than its fair value. In connection with that recent decision, in mid-February the FASB will issue an Exposure Draft on the accounting for goodwill, providing a 30-day comment period.
After reviewing the comments received on the Exposure Draft and considering the entire set of tentative decisions reached during its redeliberations, the FASB plans to issue a final Statement on business combinations and intangible assets in late June of this year. The purchase method of accounting would be required for all business combinations initiated after the issuance of a final Statement. However, the pooling method will continue to be used to account for certain business combinations initiated prior to the issuance of the final Statement.
About the Financial Accounting Standards Board
Since 1973, the Financial Accounting Standards Board has been the designated organization in the private sector for establishing standards of financial accounting and reporting. Those standards govern the preparation of financial reports and are officially recognized as authoritative by the Securities and Exchange Commission and the American Institute of Certified Public Accountants. Such standards are essential to the efficient functioning of the economy because investors, creditors, auditors, and others rely heavily on credible, transparent, and comparable financial information. For more information about the FASB, visit our Web site at www.fasb.org.