FASB Completes Business Combinations Project

Norwalk, CT, July 5, 2001—The Financial Accounting Standards Board (FASB) concluded the voting process on its business combinations project after Board members submitted final ballots on June 29. Board members unanimously voted in favor of the two Statements: Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible Assets. Both Statements will be published in July, and an announcement of their availability will be made through a press release and notice on the FASB website.

Those Statements will change the accounting for business combinations and goodwill in two significant ways. First, Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Use of the pooling-of-interests method will be prohibited. Second, Statement 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Thus, amortization of goodwill, including goodwill recorded in past business combinations, will cease upon adoption of that Statement, which for companies with calendar year ends, will be January 1, 2002.


A Review of Key Dates and Events

In response to growing concerns voiced by constituents about the need for improved standards to account for business combinations, in August 1996, the FASB put the issue of accounting for business combinations on its agenda.

From 1996 through June 2001, the Board issued four separate documents for public comment, held over 60 public meetings, and conducted public hearings, field tests, and visits. The Board also analyzed and discussed more than 500 comment letters received from a broad constituency.

In June 1997, the FASB produced a Special Report, Issues Associated with the FASB Project on Business Combinations, that solicited input on the scope, direction and conduct of the project.

In December 1998, the FASB collaborated with the G4+1, a group of international standard setters, in developing a position paper focusing on the methods of accounting for business combinations. One of the key conclusions reached in that paper was that the pooling-of-interests method of accounting should be eliminated and that the purchase method be used to account for all business combinations. The FASB and other members of the G4+1 invited constituents from around the world to comment. That paper generated much discussion here and abroad about the need for better information and greater transparency in accounting for business combinations.

In September 1999, the FASB published an Exposure Draft, Business Combinations and Intangible Assets, on which constituents were once again invited to comment. The Exposure Draft proposed that the pooling method be eliminated in favor of the purchase method and that goodwill be amortized over no more than 20 years. Those proposals drew considerable interest, initiating a series of meetings and interaction between the FASB and constituents—as well as testimony before the Committees of the House and the Senate. After redeliberations, the Board issued a revised Exposure Draft, Business Combinations and Intangible Assets—Accounting for Goodwill, in February 2001, proposing that goodwill not be amortized, but rather be tested for impairment. Comment letters were again reviewed and addressed through the Board's open due process.

In May 2001, the FASB concluded its redeliberations of all the substantive issues raised by constituents in connection with its proposals on business combinations and intangible assets. Board members unanimously supported the issuance of two final Statements—Business Combinations and Goodwill and Other Intangible Assets, replacing APB Opinion Nos. 16 and 17, respectively. The Board then directed the staff to prepare both Statements so they could be voted on by the end of June.

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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 website at

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