Accounting & Tax

BREAKING NEWS: FASB Sets Effective Date for New Goodwill Standard

Ready? On your mark, get set, implement!
Craig SchneiderMay 16, 2001

Mark your calendars. The Financial Accounting Standards Board set the effective date for its goodwill and intangible assets statement during its Wednesday meeting.

The timeline is as follows:

As expected, pooling transactions will no longer be permitted after June 30. All mergers must use the purchase method.

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However, the big news is that the non-amortization of goodwill would become effective for the fiscal years beginning after December 15, 2001, according to FASB spokeswoman Sheryl Thompson.

It would also permit early adoption for fiscal years beginning after March 15, 2001 if the first quarter financials have not been issued by the time of adoption. So, for a company whose year ends September 30, they have a choice. “They could adopt October 1 of this year, and be an early adopter if they want,” Thompson says. “But they’re not obligated to adopt until October 1, 2002.”

While some companies may be primed to start this implementation process, others are going to have to wait a bit longer. Being that most companies—especially larger ones—operate on a calendar year basis, the statement would become effective on January 1, 2002. Then, six months from that adoption–or June 1 for calendar-year companies–they must complete the first step of the impairment test.

Initial reactions, however, are not as positive as FASB may have hoped. “That’s pretty bad,” says Robert Willens, Lehman Brothers’ tax and accounting analyst, upon first hearing of the effective dates. “They didn’t extend the pooling [until non-amortization of goodwill begins]. That’s terrible.”

“We’ve always looked at this as a unified proposal,” he adds. “Now, there’s going to be an interim period where there’s no pooling but [there is still] full amortization of goodwill so there’s no longer a smooth transition.” relayed this possibility of a gap between pooling and the new purchase rules in our last FASB update.

However, Kim Petrone, FASB project manager, says if there are new deals being done in between the periods, they won’t have to amortize goodwill.

The non-amortization of goodwill date is pushed out in part because the consensus in the exposure draft comment letters was that mid-year implementation would cause confusion and companies would need more time, she adds.

That sits better with critics. “If it’s just sort of a booking reason or ease of compliance, then there’s more basis for de-coupling pooling from purchase,” Willens says.

Tim Lucas, FASB director of research and technical analysis, adds, “We were eager to not have a too big of a window for more poolings to take effect. There was a strong reason to defer the goodwill and no need to defer the pooling.”

Of course, FASB also realizes that the later timeline for the non- amortization of goodwill will not satisfy everyone. “There are companies that obviously disagreed with that and would like to adopt it as soon as possible,” Petrone says. “Beauty is in the eye of the beholder.”

More related articles:

“FASB May Delay Effective Date for New M&A Standards”

“Will FASB Finish on Time?”

“Why Wachovia is Banking on Purchase Accounting”

“Why Pepsi Loves Pooling”

“Will FASB Kill the AmeriSource-Bergen Brunswig Deal?”

2001 Executive Calendar

For a summary of exposure draft comment letters, click here.

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