WASHINGTON - Amid talk that a compromise is in the works, the Federal Accounting Standards Board will hold an open meeting April 12 on its controversial plan to eliminate pooling-of-interests accounting for mergers.
According to industry and government sources, FASB is considering ways to soften the impact its plan might have. For example, a modified form of pooling accounting may be retained, or the alternative method, purchase accounting, may be tweaked to make it more accommodating of goodwill. But sources warned that any compromise is still in the formative stages, and FASB officials refused to comment on concessions.
"No final decision has been made yet. It's a long process," said Kim Petrone, FASB's lead project manager of business combinations.
Still, banking industry representatives are heartened that FASB is listening to its critics.
"We hope that FASB will seriously consider retaining pooling or alternatively reconsidering the treatment of goodwill under purchase accounting," said Donna Fisher, director of tax and accounting for the American Bankers Association, on Thursday.
Under pooling-of-interests accounting, the book values of both companies are combined. Under the purchase method, the acquiring company takes a charge for the difference between the purchase price and the book value of the acquired company as an intangible asset, known as goodwill.
Since FASB's proposal was formally unveiled Sept. 9, the agency's board members have said pooling is confusing to investors, because it does not reflect the initial cost of the acquisition or the performance of the combined company over time.
Under the FASB plan, starting Jan. 1, 2001, an acquiring company would have to take a charge against income for goodwill, which would be written off over a 20-year period. Goodwill is an intangible asset that reflects the difference between the actual purchase price and the fair market value of the acquired company's assets.
But critics claim the proposal does not accurately value the useful life of the goodwill, which may fluctuate over time.
FASB Chairman Edmund L. Jenkins gave the first hint that the agency may relent earlier this month when he testified before the Senate Banking Committee. "Our door is still open," he told Committee Chairman Phil Gramm, who, like many lawmakers, opposes the agency's plan.
Two more lawmakers weighed in last week.
In a joint March 15 letter, House Commerce Committee Chairman Thomas Bliley and Rep. Thomas Davis asked Mr. Jenkins to delay a decision. The two Virginia Republicans also wrote to Securities and Exchange Commission Chairman Arthur Levitt, requesting that the SEC's chief economist study what benefits mergers and acquisitions activity creates for the national economy and how different accounting treatments affect such activity.