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The removal of all the restrictions placed on by the pooling method actually could increase deal flow. Companies have been so focused on the earnings hit, and therefore pooling, many missed out on taking advantage of the creativity the purchase method allows for. The fact is that accounting is just one small aspect of a merger decision. It is like getting married because the dress looks nice!
In what has been an extraordinary year for the markets, the economy, and the United States as a whole, the Financial Accounting Standards Board (FASB) has added to the mix, issuing two significant revisions. Statement No. 141, Business Combinations, has done away with the controversial pooling-of-interests method for merging. Statement No. 142 removes fixed amortization of goodwill, and replaces it with an annual impairment test. Both of these will undoubtedly have an impact on current accounting practices and the way investors use financial statements, a huge universe. Fisher Investments would like to offer our opinion on one small, but important, piece of this overall effect: Its implications for the mergers and acquisitions (M&A) market.
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