Accounting & Tax

The Politics of Pooling

Executives and the FASB clashed on Capitol Hill over proposals to eliminate the pooling method.
Stephen BarrApril 1, 2000

Metaphors both grim and flip swirled in the Senate chambers last month, as executives lambasted plans by the Financial Accounting Standards Board to eliminate the pooling method for business combinations in favor of purchase accounting.

Medtronic Inc. CFO Robert Ryan told the Senate Banking Committee that the end of pooling could disrupt the “fragile ecosystem” that brings medical innovations to market, and could result in “reduced quality of life or, worse, a shortened life for tens of thousands of patients.” Former Netscape Communications Corp. CEO Jim Barksdale likened it to benching Hall of Fame baseball player Reggie Jackson. The executives’ main gripe: The purchase method, which puts goodwill on the balance sheet and depresses future earnings, inadequately accounts for intangible assets.

An outnumbered FASB chairman Edmund Jenkins argued that pooling misleads investors, and that only the purchase method shows “the real cost of a merger transaction.” However, he agreed to explore a suggestion floated by committee chairman Sen. Phil Gramm (R-Tex.) to require only that companies periodically test goodwill for impairment.

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