formally issued its proposal to ban the pooling-of-interests method of accounting for mergers that is favored by banking companies.

The FASB said it would take comments on the plan through Dec. 7 and hold public hearings early next year in New York and San Francisco. The agency, which first announced its preference for purchase accounting on April 21, said the mergers affected would be those initiated after a final decision is reached late next year.

"When two different accounting methods are used for what is essentially and economically the same transaction, it is confusing to investors," FASB Chairman Edmund L. Jenkins said in a statement. "We believe that the purchase method of accounting gives investors better information about the initial cost of the transaction and the acquisition's performance over time than does the pooling-of-interests method."

Banks overwhelmingly prefer to use the method the FASB is trying to eliminate. In 1998, the value of bank mergers accounted for as poolings was $257.6 billion, compared with $19.6 billion for purchase deals, according to Sheshunoff Information Services.

Under purchase accounting, the price paid above the acquired company's net worth is recorded as goodwill and must be subtracted from the combined company's reported earnings over time. In its proposal, the FASB suggests the maximum period should be 20 years.

In a pooling, the assets of two companies are combined and subsequently reported as if the buyer and seller had previously been one company. Among other problems, Mr. Jenkins said, poolings hide purchase prices and make it tough for investors to track the performance of the combined company.

To pacify critics, FASB said companies may report earnings-per-share figures that have not been adjusted to reflect goodwill.

-- Barbara A. Rehm

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