Under that approach, goodwill wouldn't be expensed against earnings annually over a period of up to 20 years, as originally proposed. Instead it would be reviewed for impairment -- written down and expensed against earnings only in the periods in which the recorded value of goodwill is more than its fair value, FASB said.

"Determining the appropriate accounting treatment for purchased goodwill has been the most challenging issue in our project to improve the transparency of accounting for business combinations," FASB chairman Edmund L. Jenkins said.

Feedback from companies, auditors, and investors and the results of company field visits indicated that an impairment approach for goodwill could be developed that would be operational, FASB said this week.

Public input also confirmed that "such an approach would be an improvement over the originally proposed amortization approach" because it provides investors with greater transparency with respect to the economic value of goodwill and the amount and timing of its impact on companies' earnings. According to FASB, the approach is consistent with the proposed statement's conclusion that some of what is recorded as a goodwill asset doesn't decrease in value.

Under the nonamortization approach, FASB said goodwill would be reviewed for impairment at the lowest reporting level that includes the acquired business (the reporting unit). A company would be required to determine the value of that reporting unit and the value of the recognized net assets (excluding goodwill) of the same unit. The difference between those amounts -- the implied value of goodwill -- would be compared with the carrying amount of goodwill related to that unit. If that implied value of goodwill is less than the carrying amount, an impairment loss would be recorded in the company's income statement, FASB said.

The Board also said an initial impairment review would be performed on goodwill of the reporting unit if the amount of goodwill were "significant to that unit." Subsequent impairment reviews would only be required if an event occurred that indicated that goodwill might be impaired.

After the discussion of the issues surrounding the impairment approach, FASB said it would revisit the related issue of whether to retain the pooling-of-interests method, a proposal that has drawn the ire of many corporate executives, who fear that the elimination of the pooling method will hinder mergers.

The Board said it has no "deadline" for completing the project, and estimated that the earliest it would be able to complete the project on business combinations and intangible assets is late in the first quarter of 2001.

-- SmartPros News Staff

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