WASHINGTON - An expected ban on using the popular pooling-of-interests method of accounting for mergers may be delayed again, a member of the group that sets accounting standards said Thursday.
Speaking at an American Institute of Certified Public Accountants conference here, Financial Accounting Standards Board member Michael Crooch said that the group, which had been expected to bar pooling of interests in March, is investigating alternative approaches to accounting for goodwill, the difference between the purchase price and book value of an acquired company.
This effort may further delay the change in accounting rules that originally had been expected by yearend. "We've already pushed the effective date back to March, and quite frankly, it could get pushed back further than that," Mr. Crooch said.
Two methods are currently used to account for mergers. The purchase method, which FASB reportedly favors, directs the acquiring company to book goodwill as an asset and amortize it over several years; this creates a drain on earnings. The pooling method allows the businesses to simply combine their balance sheets, averting the need to account for goodwill.
FASB is considering a proposal by the banking industry and others that would let merging companies book goodwill as an asset but amortize it only if it loses value.
The problem is deciding how to measure a decline in value, or "impairment," as experts call it. "We are currently looking for an impairment test that is sufficiently robust," Mr. Crooch said.
At the same conference, a member of a group drafting rules for banks' loan-loss reserve accounting signaled that it is moving away from a proposal that had rattled bankers early this year.
Mark Sever, chairman of the CPA institute's accounting standards executive committee, said a task force studying the issue has decided it is unrealistic to require banks to determine a precise event that caused a loan or group of loans to go bad before setting aside reserves for them.
"Trying to define a lightning rod event, so we can say, 'Aha, that's when the loss occurred,' is not going to happen," Mr. Sever said. The task force is still debating when a bank should recognize a loss and reserve for it, he said.
