In particular, corporate executives asserted that the pooling-of-interests method had to remain available to them and to their firms. If pooling of interests were banished, then business combinations would decline, opportunities for gaining economies of scale would be missed, and American business enterprises would lose ground with their European and Asian competitors.

As we all know, FASB disallowed the pooling technique in its Statement No. 141. Business combinations did decline for a short while, but this decline had nothing to do with FASB’s promulgation. Better explanations for this falling off exist in terms of the accounting scandals and the resulting recession. Europe also had a decline in business combinations occurring in its zone, again indicating real economic factors at play.

Further evidence that Statement No. 141 had nothing to do with the downturn in mergers and acquisitions exists because of the turnaround in these activities. Business combinations are picking up and may be accelerating with the proverbial head of steam. We see the marriages between Cingular Wireless and AT&T Wireless Communications, between Oracle and PeopleSoft, between Kmart and Sears, between Sprint and Nextel, and between Symantec and Veritas. Thus, the worries enunciated by managers did not materialize, as evidence to the contrary meets us virtually every week in the business press.

The merger business is alive and well. This rebound would be unlikely if the managers' assertions of yesteryear were correct. My conclusion is that managers wanted the pooling of interests method for reasons other than ill consequences that they and their shareholders might face. In particular, the pooling of interests allowed a host of techniques for managers to lie about their economic performance, and some managers lusted after this ability to prevaricate to shareholders, creditors, and government regulators.

With this backdrop, consider now the shrieks heard from the hi tech business about FASB’s rule to expense stock options. Managers claim all kinds of disastrous consequences unless Congress stops the board. The Baker-Drier and the Enzi bills implicitly agree, for they call for economic impact studies before corporations have to implement Statement No. 123 (as amended). For example, the Enzi bill says, “The Secretary of Commerce and the Secretary of Labor shall conduct and complete a joint study on the economic impact of the mandatory expensing of all employee stock options, including the impact upon—

(1) the use of broad-based stock option plans in expanding employee corporate ownership to workers at a wide range of income levels, with particular focus upon non-executive employees;

(2) the role of such plans in the recruitment and retention of skilled workers;

(3) the role of such plans in stimulating research and innovation;

(4) the effect of such plans in stimulating the economic growth of the United States; and

(5) the role of such plans in strengthening the international competitiveness of businesses organized under the laws of the United States.” If the Secretary of Commerce oversees such work, is there any doubt that actual and potential corporate campaign donations will bias and taint the research?

We have learned to dismiss manager cries that the sky is falling. Those cries are merely rhetorical devices employed in an attempt to embellish the accounting reports. We should ignore them completely. As with business combinations, managers are only protecting their self-interests when pushing for a Congressional overturn of FASB’s accounting for stock options.

J. EDWARD KETZ is accounting professor at The Pennsylvania State University. Dr. Ketz's teaching and research interests focus on financial accounting, accounting information systems, and accounting ethics. He is the author of Hidden Financial Risk, which explores the causes of recent accounting scandals, and columnist of The Accounting Cycle for SmartPros.com.