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The Financial Accounting Standards Board altered its new rules for booking purchase premiums May 1, responding to complaints that its original proposal would have been too difficult to implement. The FASB voted to drop a set of “triggers” that could have forced companies to revalue purchase premiums — which accountants call goodwill — as often as several times a year. But the Norwalk, Conn.-based group also decided that companies will have to test the value of their goodwill at least once a year. The vote is part of the FASB’s four-year effort to rewrite the merger accounting standards. The FASB has already decided to eliminate the popular pooling-of-interest method for recording deals, and it has decided to take a dramatically new approach to goodwill. The FASB plans to approve the rules by June 30, though they likely will not go into effect until late this year. The main question remaining is how companies should write goodwill off their balance sheets. The group’s original proposal, released in September 1999, said companies had to amortize goodwill over no more than 20 years. But technology and financials services companies, which often have a lot of goodwill on their books, objected to that proposal. So in December, the FASB agreed to drop goodwill amortization. Instead, the group decided that companies should test the value of goodwill to see if it has declined in value. The FASB now has to decide when those tests should be performed. For its second merger accounting proposal, released in February, the FASB developed a long list of triggers that would force companies to conduct goodwill tests. But, again, companies complained. This time, they said the triggers were too sensitive and would set off costly goodwill reviews practically every quarter. Others argued that companies would interpret the triggers differently, producing vastly different financial statements. The FASB has moved to address both complaints. At a meeting in April, the FASB agreed to make its goodwill tests simpler, and the FASB decided Tuesday to pare down the list of triggers. But the group also said companies must test their goodwill once a year, even if none of the triggers have been set off. The decision adds a layer of objectivity to the new rules, which will likely be reassuring to investors, said Ray Beier, a partner with PricewaterhouseCoopers. “It makes more sense to me to test it every year because then you know it’s been tested,” he said. Copyright (c)2001 TDD, LLC. All rights reserved.

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