Accounting & Tax

EXCLUSIVE: FASB May Delay Effective Date for New M&A Standards

Timing for 'sign off' on non-amortization of goodwill also may be postponed.
Craig SchneiderMay 2, 2001

Companies may not have to begin implementing new merger accounting standards as early as previously thought, an official of the Financial Accounting Standards Board (FASB) tells

Kim Petrone, FASB project manager, said FASB expects to make its decision on the timing by the end of this month. “The effective date is the last issue we talk about,” Petrone says. “It hinges on when the statement will be issued.”

For issues addressed in this week’s meeting, read “FASB Amends Goodwill Proposal”.

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What’s more, Petrone says that although the Board is still on target to “sign off” on June 30 on the standard for the non-amortization of goodwill in purchase accounting and end the pooling of interests treatment, this date could also change. “Honestly, that [date] could slip too,” she says. “If we need more time we’re going to take it.”

However, there is a reason why FASB is trying to keep to this June 30 schedule. “Because of Board member turnover on June 30, we’re trying to get it balloted by [then],” she adds. “We would like to issue the statement with as many Board members as possible agreeing to it. All six current Board members do.”

Assuming FASB stays with the June 30 target, Petrone says the official statement could wind up being issued by July 15, after the two to three weeks it takes to bind the rules in a book. In it, FASB will provide the effective dates for the end of pooling and beginning of the new purchase method.

An official decision answering these timing questions is scheduled for either the Board meeting on May 16 or May 22, she adds. In one scenario, FASB may make August 1 the effective date, Petrone says. The Board would pick that date if it stays with its original intent to have the statement be effective in “interim periods.”

Since few companies start reporting quarters on August 1, the real effective date for most companies to start implementing the standards would be October 1, or the start of their next fiscal quarter.

If the Board instead decides to switch to a fiscal year effective date, implementation standards could potentially start on January 1, 2002 for those companies that report on a calendar year reporting schedule, Petrone adds.

What’s more, the Board will debate whether companies will have to pull the plug on pooling practices before the new guidelines on handling goodwill and other intangibles for mergers go into effect. “There’s a potential for a gap between when pooling stops and non-amortization starts,” she says. “I don’t think the Board members are as concerned about making them parallel as when we put [the Exposure Draft] out.”

Therefore, companies could be restricted from using pooling for transactions initiated after June 30. But the adoption of the new purchase accounting method with the non-amortization of goodwill may have an effective date of August 1 or later. So companies that complete deals in the intervening period may have to amortize for a short period of time under the existing purchase method.

Overall, FASB is dedicated to starting the non-amortization of goodwill as fast as possible. “We were trying to do it sooner rather than later, but the Board may change that,” Petrone says.

For a summary of comment letters responding to the 2001 revised Exposure Draft, click here.

More related articles:

“Will FASB Finish on Time?”

“Why Wachovia is Banking on Purchase Accounting”

“Why Pepsi Loves Pooling”

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

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