CFO Dives Into Pooling Proposal
Pioneer Planet (Minnesota) Online (08/20/00) Vol. 5, No. 17 p.10; Tahmincioglu, Eve

The Financial Accounting Standards Board's (FASB) proposal to eliminate the pooling method of accounting was met with disapproval from the accounting industry. The method has been popular for many years, as technology companies buy start-ups with innovative products, but without many tangible assets. With purchase accounting, the FASB would force acquirers to write off goodwill, which is the difference between the purchase price and the asset value. Writing off goodwill hurts earnings and stock prices for several quarters after an acquisition. Bob Ryan, chief financial officer of Medtronic, testified before Congress arguing against the FASB proposal. He recently stated that writing off goodwill was a bad idea, because when a purchase is made, an increased value is desired, but with a goodwill write-off over a 20-year period, a combined company has a loss instead of a gain. The FASB wants to make the change because it believes that current rules leave companies unaccountable for goodwill, but Ryan disagrees, stating that companies are accountable for every share. Ryan does, however, believe that purchase accounting is appropriate in some instances, like when a company buys a product line. Therefore, he suggests that the FASB make changes fittingly, without totally eliminating pooling.


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