Bridging the GAAP
Barron's Online (11/06/00) Vol. 13, No. 7 p.11; Donlan, Thomas G.

The efficient market hypothesis is false, otherwise there would be no need for the Securities and Exchange Commission (SEC) or the Financial Accounting Standards Board (FASB), according to author Thomas G. Donlan. Donlan uses the evidence of Abraham Briloff, the accounting professor and writer who has published analyses of companies and critiques of the SEC and FASB in Barron's since 1968, to make his case. Donlan said Briloff changes markets with his analysis by shocking thousands of investors who are not informed by an efficient market. Briloff calls the use of pooling-of-interest accounting dirty accounting because shareholders never get informed directly about the acquisition cost. The alternative, purchase accounting for mergers, forces accountants to do more work. There are two arguments against purchase accounting: one, market participants are sophisticated enough to unravel the diverse standards used for reporting similar transactions, and two, purchase accounting would make markets grind to a halt, while investors would run from companies that are successful because of their acquisitions and mergers. Donlan argues that both of these opinions should be doubted.


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