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The Financial Accounting Standards Board decided Wednesday to modify its new merger accounting rules, responding to worries that the group’s original proposal is too complex. But the board did not change a key element of the rule that some believe is open to abuse. At its headquarters in Norwalk, Conn., the FASB began a second round of deliberations on a December decision to eliminate goodwill amortization, which refers to the accounting technique of writing off purchase premiums in annual installments. Companies dislike amortizing goodwill because they have to record these installments as an expense, which lowers reported earnings. The FASB has proposed asking companies to estimate the value of goodwill using revenue projections and write off goodwill if it has dropped in value. These new rules would result in goodwill write-offs once every few years, though they would tend to be greater than the annual amortization charges. Companies and most accountants support the effort, which would cap the FASB’s five-year effort to revamp merger accounting. The board hopes to vote on a new merger standard by the end of June, with the new rules going into effect later this year or early 2002. Many of the changes made Wednesday appear minor, but they could have a dramatic impact on how the rules work in practice. For instance, the FASB clarified its definition of a “reporting unit” — the business unit to which companies must assign goodwill. Many companies said the original proposal would have forced them to keep records on hundreds of different reporting units. (A retailer, for instance, would have needed to assign goodwill to each of its individual stores.) The FASB said Wednesday that companies would not need to keep such detailed records. However, the accounting group made few changes to rules that separate goodwill from other intangible assets, such as trademarks, technical know-how and customer lists. Some critics believe the decision to get rid of goodwill amortization charges gives companies an incentive to camouflage such intangibles as goodwill. While under the new rules goodwill write-offs will happen once every several years, companies will be forced to deduct intangible amortization charges from earnings every year. But the FASB believes its existing regulations are sufficient, said Kim Petrone, a project manager. The accounting rules do not give companies the option of choosing whether to separate out intangibles; rather, it requires them to do so, she said. “Ultimately, that is an enforcement and auditing issue,” she said. “Companies have to follow the rules.” Copyright (c)2001 TDD, LLC. All rights reserved.

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