Pooling to become history as FASB makes changes.

In May, FASB announced it was close to replacing long-standing guidance with new statements that would require companies to change their accounting for goodwill and intangible assets acquired in business combinations.

By the end of June, the board was to have voted on two final statements, Business Combinations and Goodwill and Other Intangible Assets. Expected to gain board approval, this guidance will, when issued, supplant APB no. 16, Business Combinations (1970), and APB no. 17, Intangible Assets (1970), which, respectively, addressed accounting for business combinations at the time of acquisition and thereafter. The two new statements will forbid some practices permitted under APB nos. 16 and 17.

The first statement--on business combinations--will require use of the purchase method for all such transactions initiated after June 30, 2001. (Generally, a merger or acquisition is "initiated" when those participating in it announce the terms of their agreement; a deal is "completed" when a stock swap or cash payment takes place.) This will effectively ban the pooling-of-interests method of accounting, which permitted companies to record assets at their historic book value. The purchase method requires that assets be recognized, initially, at the price for which they were acquired.

The second statement--on goodwill and other intangible assets--will end amortization of goodwill and certain intangible assets. Instead, companies will be required, at least annually, to perform impairment tests on such assets to determine whether their fair value has changed. For goodwill and intangible assets already on a company's books, the new provisions will take effect in fiscal years starting after December 15, 2001.

"These changes will lead to more transparent financial statements," said FASB project manager Kim R. Petrone. "The board's goal is to improve financial reporting and ensure that financial statements clearly indicate how much an acquirer paid for a business and how it performed afterwards."

For CPAs, Petrone said, the two most important aspects of the new guidance are refinements in the purchase method and the complete revamping of the provisions relating to accounting for goodwill.

"They'll have to know when to recognize an intangible asset separately from goodwill," she added, "and become familiar with the new provisions for goodwill accounting, which were totally revised."

Early adoption of the new guidance will be permitted for companies with a fiscal year beginning after March 15, 2001, for which first quarter financial statements have not been issued.

A summary of the business combinations project is available on the FASB Web site at http://accounting.rutgers.edu/raw/fasb/project/buscomsumm.html.