Controversy Delays Rule on Pooling Yet Again.

• Author: MYERS, ROSLYN
• Position: Brief Article

Pooling remains an endangered species, but its active life looks like it will e a bit longer.

The popular accounting treatment still doesn't look likely to survive a challenge from the Financial Accounting Standards Board, but FASB has agreed to delay any decision into 2001 after a flurry of criticism that drew some 400 comment letters to its exposure draft, most of them negative -- including several from FEI seeking a delay in implementation.

Those most opposed to any ban on pooling remain venture capital firms and high technology companies (see Washington Insights, page 65). They have faulted the FASB's proposal on public policy grounds, maintaining that eliminating pooling will suppress merger and acquisition activity and stifle the entrepreneurial spirit and innovation that have fueled the U.S. economy in recent years. The banking community has also voiced strong opposition. Bankers believe that the high level of consolidations in recent years -- widely believed to be a positive force, removing excess capacity from the industry -- would be lowered dramatically if pooling is eliminated.

Still, a large number of respondents support the Board's fundamental conclusion about purchase accounting: All business combinations are acquisitions, and should, therefore, be accounted for on the value exchanged (whether the consideration takes the form of cash, debt or equity).

However, some who disagree with the FASB's premise maintain that mergers are fundamentally different from acquisitions, and that accounting for true mergers of equals requires using a different method than purchase accounting. They argue that eliminating the pooling method for those transactions is not conceptually correct, and that both methods should be preserved because each produces accounting results that appropriately reflect key differences in the ownership, structure and strategic intent of the combined entity. The Board's response, however, is that transactions in which control over the combined entity is equally shared rarely, if ever, occur -- and that the disadvantages of keeping two accounting methods outweigh the advantages of having a separate method for those extremely rare transactions.

High-tech companies also point to the perceived deficiencies in the way that purchase method accounts for intangible assets. One of these criticisms is the difficulty of comparing firms that have developed through business combinations with others that have developed through...