FASB to address pooling of interests.

The United States stands alone as perhaps the last country in the world to still permit pooling-of-interests accounting. Other countries either do not allow it at all or allow it only under certain narrow circumstances. "We're out of step with the world," G. Michael Crooch, chairman of the American Institute of CPAs accounting standards executive committee, told the Journal. Crooch is a partner of Arthur Andersen, where he advises clients on mergers.

The Financial Accounting Standards Board has agreed to look at these rules and possibly make some changes in the next few years. "I think there will be a strong push for the United States to harmonize its accounting with the rest of the world," said Crooch. He pointed out that Securities and Exchange Commission Chief Accountant Michael Sutton also is concerned about the current rules; Sutton told the Wall Street Journal that over 40% of his staff's time is spent figuring out which mergers qualify for pooling. Still, Crooch said any changes would be accompanied by a lot of debate because pooling is a popular method for merging entities.

Companies' favored method

"Merging companies like this treatment, as opposed to purchase accounting, because they don't write up assets or add goodwill to their balance sheets. Without pooling, goodwill has to be amortized against future earnings, and if companies record goodwill on the books, they end up with lower future earnings -- certainly an undesirable result for management." In fact, any changes in the pooling-of-interests treatment will have to be accompanied by changes in accounting for goodwill, according to Crooch, who noted that if the FASB drastically restricts pooling rules, the major opportunity to avoid goodwill amortization will disappear.

"The use of pooling of interests is very important in some mergers," said Crooch, "and I have even had clients tell me, `If we can't account for this merger as a pooling of interests, we're not going to do it at all.'"

The FASB is still discussing the issue; draft rules might not be issued for two years.