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A recently proposed accounting rule that does away with the amortization of goodwill would apply not only to new mergers and acquisitions, but also to goodwill currently on a company’s books. The Financial Accounting Standards Board said Wednesday it expects to issue a new merger accounting standard by June 2001, which allows the board time to issue the proposed rule for public comment. Beginning in January, the board will turn its attention to deciding whether to retain the pooling-of-interests method of accounting for mergers and acquisitions. The final rule will address the fate of pooling, as well as accounting for goodwill. Pooling is popular with companies because it allows them to avoid recognizing premiums paid in acquisitions. Goodwill, an intangible asset, is the amount paid in excess of an acquired company’s book value. FASB prefers to treat the premium under the purchase accounting method because it more accurately reflects the economics of acquisitions. The proposed end of amortizing all goodwill “is very good news for companies and bankers,” said Robert Waxman, an accounting expert with Corporate Finance Advisory, a New York-based consulting firm. Earlier this month, the accounting standards board decided that goodwill would be accounted for by constantly testing the value of the goodwill asset. Under that approach, goodwill would be reviewed for impairment, that is, written down and expensed against earnings, only in the periods in which the recorded value of goodwill is more than its fair value. Currently under purchase accounting, goodwill is amortized over a period of decades, creating an extended hit to companies’ earnings. The board intends to allow the accounting change to apply to all goodwill currently on a company’s books so that financial reporting will be uniform among all companies, said Kim Petrone, a FASB project manager. “Goodwill currently on the books is no different from goodwill in the future. Everyone on the board supports this and says it makes good sense,” she said. “I suspect companies that are concerned about the current process will like the change.” Nonetheless, Waxman said he expects implementing the revised goodwill rule will pose some challenges. The rule is “positive in some ways but disturbing in others,” he said. Copyright (c)2000 TDD, LLC. All rights reserved.

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