FASB Set to Eliminate Pooling, Amortization of Goodwill

Healthcare Financial Management, July, 2001

The Financial Accounting Standards Board (FASB) has announced that it unanimously supports the issuance of two controversial final statements, Business Combinations and Goodwill and Intangible Assets, which will supersede Accounting Principles Board Opinion Nos. 16 and 17, respectively. The statements will effectively eliminate both the pooling-of-interest method of accounting and amortization of goodwill among for-profit entities. (The FASB is addressing not-for-profit business combinations in a separate project.)

Pooling will be abolished as a consequence of the FASB's final statement regarding business combinations, which will require that the purchase method of accounting be used for such combinations. The change takes effect for all business combinations initiated after June 30, 2001. The FASB's work toward eliminating the pooling-of-interest method had prompted a broad range of comments, including letters of concern from members of Congress. The FASB concluded, nonetheless, that the effect of its decision would be to vastly improve the transparency of the reporting for business combinations.

The FASB's final statement regarding goodwill and intangible assets will provide that goodwill should no longer be amortized, but rather, it should be tested for impairment at least annually. Also, new criteria will be used to determine whether an acquired intangible asset should be recognized separately from goodwill. The changes apply to existing goodwill and intangible assets beginning with fiscal years starting after December 15, 2001. Early adoption of the statement affecting goodwill will be permitted for companies with a fiscal year beginning after March 15, 2001, for which first-quarter financial statements have not been issued. The FASB will formally vote on the new statements at the end of June and plans to release them at the end of July.

To read the FASB's May 22, 2001, press release announcing its plans to draft the new final statement, go to http://www.accounting.rutgers.edu/raw/fasb/news/index.html.>

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