FASB Completes Decisions on Business Combinations Project; Prepares for Drafting of Two Final Statements

Norwalk, CT, May 22, 2001—The Financial Accounting Standards Board (FASB) has concluded months of redeliberations of all the substantive issues raised by constituents in connection with the FASB's 1999 proposal on Business Combinations and Intangible Assets. Board members unanimously supported the issuance of two final Statements: Business Combinations and Goodwill and Intangible Assets,replacing APB Opinion Nos. 16 and 17, respectively. The Board has directed the staff to draft both Statements so they may be voted on by the end of June.

Statement on Business Combinations

The final Statement on Business Combinations will provide guidance on the accounting for a business combination at the date a business combination is completed. It will change the accounting for business combinations in the following important ways:

  • The Statement requires use of the purchase method of accounting for all business combinations initiated after June 30, 2001, thereby eliminating use of the pooling-of-interests method. The purchase method gives investors more information about the initial cost of a transaction and how to track the investment over time.


  • It provides new criteria that determine whether an acquired intangible asset should be recognized separately from goodwill. Those new criteria will improve the usefulness of financial statements because more information about acquired intangible assets will be provided than is available under current accounting rules. Those new criteria, and other changes to the purchase method of accounting, will apply to any business combination completed after June 30, 2001, that is accounted for by the purchase method.

Statement on Goodwill and Intangible Assets

The Statement on Goodwill and Intangible Assets will provide guidance on how to account for goodwill and intangible assets after the acquisition is complete. The most substantive change represented by this Statement is that goodwill will no longer be amortized; instead, it will be tested for impairment. Nonamortization of goodwill will provide investors greater transparency with respect to the economic value of goodwill and the amount and timing of its impact on corporate earnings.

The following is a summary of key decisions:

  • Goodwill and certain other intangible assets will no longer be amortized and will be tested for impairment at least annually.


  • The Statement will apply to existing goodwill and intangible assets, beginning with fiscal years starting after December 15, 2001.


  • Early adoption of the Statement will be permitted for companies with a fiscal year beginning after March 15, 2001, for which first quarter financial statements have not been issued.


    Examples include the following —


    A company whose annual reporting period ends at December 31 must adopt the Statement on January 1, 2002. Early adoption will not be permitted. A company whose annual reporting period ends on June 30 will be required to adopt the Statement by July 1, 2002, or may elect to adopt the Statement on July 1 of this year.

  • Goodwill and certain intangible assets acquired in transactions completed after June 30, 2001, will not be amortized.

In commenting on the progress that the Board and staff have made, FASB Chairman Edmund L. Jenkins, stated, "Today's meeting concludes a public process that began in 1996 and has included the issuance of four separate documents made available for public comment, more than 60 public meetings, public hearings, field tests and visits, along with the Board's analysis and discussion of over 500 comment letters received from a broad constituency. The FASB has worked diligently on this project, and we look forward to finalizing the Statements."

Further details about these and other related decisions on this project are available on the FASB website at

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Since 1973, the Financial Accounting Standards Board has been the designated organization in the private sector for establishing standards of financial accounting and reporting. Those standards govern the preparation of financial reports and are officially recognized as authoritative by the Securities and Exchange Commission and the American Institute of Certified Public Accountants. Such standards are essential to the efficient functioning of the economy because investors, creditors, auditors, and others rely heavily on credible, transparent, and comparable financial information. For more information about the FASB, visit our website at

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