The FASB Wants Your Feedback.

The FASB requests specific feedback on its exposure draft, particularly regarding goodwill and intangibles; the comment period runs through early December. "Constructive responses would be very helpful to us," says the FASB's Ed Jenkins. "I can't think of a standard we've issued in any subject that hasn't changed somewhat from the exposure draft to the final as a result of input from the comment process. I can't emphasize enough how important it is that all FEI members weigh in with constructive ideas as to how we can do better. It's one thing to say you don't like something; it's another to come up with something to help us solve the problem."

The following questions are adapted from the recently released exposure draft. One copy of the exposure draft is available without charge by writing to the FASB Order Dept., 401 Merritt 7, P.O. Box 5116, Norwalk, Conn. 06856 and requesting product code E154. The exposure draft also is available on the FASB web site, www.fasb.org.

FEI President and CEO Phil Livingston also invites you to send a copy of your comment letter to him (at [e-mail]), so FEI can track the dialog.

Methods of Accounting for Business Combinations

* The proposed statement would eliminate use of the pooling-of-interests method to account for business combinations and require the purchase method to be used to account for all business combinations. Do you agree with the board's conclusion that all business combinations are acquisitions? If not, why not?

* Application of the purchase method would require that an acquiring enterprise be identified in all business combinations. The proposed statement would modify the provisions in Opinion 16 for determining the acquiring enterprise. In addition to factors relating to voting rights, it would require consideration of the composition of the board of directors and senior management of the combined enterprise. Are those factors sufficient for determining the acquiring enterprise in a I business combinations? If not, what additional factors or guidance should be included?

Accounting for Goodwill

* The proposed statement would require that the excess of the cost of the acquisition over the fair value of net assets acquired (goodwill) be recognized as an asset. It would require that goodwill be amortized over its useful life; however, the amortization period may not exceed 20 years.

a. Does goodwill meet the assets definition and criteria for recognition as an asset in FASB Concepts Statements No. 5, Recognition and Measurement in Financial Statements of Business Enterprises, and No. 6, Elements of Financial Statements?

b. Should goodwill be amortized in a manner similar to most other assets?

c. Is the 20-year maximum amortization period appropriate?

* The board considered approaches that would have permitted some or all goodwill to be capitalized, not amortized. However, it found each approach to be non-operational because of subjectivity in identifying and measuring the elements of goodwill, particularly those with indefinite lives, and the inability to adequately review goodwill for impairment (no identifiable direct cash flows).

a. Is there a way to overcome subjectivity in identifying and measuring discernible elements of goodwill and thereby make the discernible-elements approach operational?

b. Is there a robust and operational way to review goodwill for impairment to place more reliance on an approach that included not amortizing some or all goodwill?

Presentation in the Financial Statements

* The proposed statement would require that goodwill charges (amortization expense and impairment losses) be presented in the income statement as a separate line item on a net-of-tax basis. The goodwill charges would be followed by other line items that don't constitute "continuing operations," such as discontinued operations and extraordinary items. The proposed statement would also require that enterprises present a subtotal on the income statement before the goodwill charges. However, that required subtotal would include amortization expense related to other intangible assets acquired in a business combination as well as the effects of the step-up in basis of the other net assets acquired.

In addition, the proposed statement would permit enterprises to present per-share amounts on the face of the income statement for the subtotal before the goodwill charges arid for the goodwill charges.

a. Would those income statement presentation provisions result in more useful financial information? If not, what presentation would be preferable?

b. Would the unique treatment of goodwill charges in the income statement serve as a disincentive to separately recognizing identifiable intangible assets that are not afforded that same treatment?