Comments Push FASB To Rethink Goodwill

In the wake of a deluge of negative comment letters from the public, the Financial Accounting Standards Board decided last week to rethink how to account for goodwill in its business combination proposal.

The board heard an analysis of the public response to the recommendations of the G4+1’s position paper on business combinations at its March 24 meeting. The international body’s views on pooling and other aspects of business combinations, such as accounting for goodwill, are much stricter and more literal than those in practice in the U.S. today. FASB’s proposal for business combinations is similar, in an attempt to harmonize standards internationally. Currently, companies of virtually any size can merge using the pooling method of accounting, whereas in most other countries, the merging entities must have very similar market capitalizations.

Such was the corporate disapproval of the paper that the board decided to give all of its tentative decisions on goodwill thus far a re-think at the next meeting in which it addresses the issue.

Of the 124 respondents, approximately 40% did not support the G4+1’s position–primarily banks, securities firms and corporations. Almost 30% of the respondents expressed unqualified support for the positions–predominantly academics, public accountants and other corporations. Another approximately 25% of respondents had "qualified" support for the G4+1’s position paper, depending on FASB "fixing" the accounting for goodwill or on FASB retaining the pooling method for mergers of companies of approximately equal size. The re-think will come after the board decides when it is appropriate to use the pooling or purchase method of accounting. That meeting is tentatively scheduled for April 21, with the possibility of having an educational meeting before, perhaps on April 14, according to project manager Kim Petrone.

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