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The Financial Accounting Standards Board voted Wednesday to eliminate pooling-of-interest accounting for mergers, but it delayed implementation until summer. The vote confirms earlier decisions by the FASB to alter how companies account for mergers. It comes on the heels of last month’s decision to make purchase accounting for mergers more attractive. FASB’s action was expected and drew support from accounting experts. “This actually makes M&A more accessible,” said Jack Ciesielski, publisher of The Analyst’s Accounting Observer. “Pooling was something that only balance-sheet gymnasts could accomplish.” The FASB, a Norwalk, Conn., group that writes the nation’s accounting rules, agreed to grandfather pooling deals announced before the new rules are released, likely in late June. The decision dispels fears that the FASB would shut the door on poolings immediately after Wednesday’s meeting. Pooling-of-interest is popular because the company does not have to write off the premium it pays above the book value of the target’s assets. The accounting term for this premium is “goodwill.” The FASB has argued that pooling distorts financial results by hiding the impact a deal has on the acquirer’s bottom line. In September 1999, the group voted to eliminate pooling and force all deals to be booked as if one company had purchased the other. That decision triggered a flood of complaints from the executives that use pooling most — those running financial and technology companies. They first pressed the FASB, then Congress, to reverse the decision and keep pooling. FASB refused to keep pooling, but it adopted rules for writing off goodwill that make purchase accounting much more palatable. Rather than amortizing goodwill over 40 years, companies will test their goodwill regularly to see if it has declined in value. That gives executives wide latitude in deciding when and how much goodwill to write off. “If poolings are going to be eliminated, which we don’t support, this does in a way soften the blow,” said Catherine Pulley, a spokeswoman for the American Bankers Association. Despite some continued support for pooling, most observers expect little opposition to Wednesday’s decision. Many companies would have abandoned pooling anyway, accounting experts said. If a company pools, it has to freeze several kinds of transactions, such as share buybacks and divestitures. These rules tie buyers’ hands after a deal, and they often compel them to undo transactions that close before the deal is announced. For instance, Franklin Resources Inc., a San Mateo, Calif.-based financial services company, told regulators in December that it would reissue 7.2 million shares it bought back from investors to ensure that its $825 million purchase of New York’s Fiduciary Trust Co. International qualified as a pooling. The company said last week that FASB’s new rules allow it to switch the deal to a purchase and keep the shares. Copyright (c)2001 TDD, LLC. All rights reserved.

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