WASHINGTON - Poised to eliminate pooling of interests for mergers, the Financial Accounting Standards Board is scheduled to release today a draft compromise it says would soften the blow of the imminent rule change.
The draft has been anticipated since the board, a private-sector body that sets accounting rules, voted in January to eliminate pooling. Instead, by midyear mergers would have to be recorded by the acquiring company as a purchase. The so-called purchase accounting method would require companies to recognize the difference between the price paid for an acquisition and the acquired firm's book value. That difference, known as goodwill, would have to be subtracted gradually from earnings over 40 years or less.
The board said the change would provide a clearer picture to investors of the cost of deals, but financial services companies and other businesses had balked because of the potential harm to earnings. Under pooling, merging companies could combine their balance sheets with no impact on the bottom line.
In response, the board proposed to let companies carry goodwill on their balance sheets as an asset unless it is "impaired," having declined in value. The amount of the decline would have to be written off.
Financial services industry officials have anxiously awaited the draft for details of how companies would be expected to test assets for impairment. A merged company is expected to be required to assign goodwill to various business units and to measure it periodically for impairment.
The draft will be available at www.fasb.org, and open for comment until March 16. The board reiterated that it intends to have a final rule in place by the end of June.