FASB EXPOSURE draftBusiness Combinations and Intangible AssetsIssues of Most Concern to RespondentsElimination of the Pooling Method (Issue 3)Accounting for GoodwillIs Goodwill an Asset? (Issue 6(a))Should Goodwill Be Amortized Like Other Assets? (Issue 6(b))Is the 20-Year Maximum Amortization Period Appropriate? (Issue 6(c))Can Goodwill Be Tested for Impairment Reliably Enough to Allow Nonamortization? (Issue 7(b))Issues Concerning Ongoing Impairment Testing of Goodwill (Issue 10(d))Two-Year Impairment Review (Issue 10(b))Income Statement Presentation (Issues 11(a) and 11(b))Accounting for Negative Goodwill (Issue 5)Accounting for Intangible AssetsCan Intangible Assets Acquired in a Business Combination Be Measured Separately From Goodwill with a Sufficient Degree of Reliability to Meet Asset Recognition Criteria? (Issue 8)Are the Criteria to Overcome the 20-Year Maximum Useful Life Presumption for Intangible Assets Appropriate? (Issue 9)Disclosure RequirementsWill the Proposed Disclosure Requirements Provide Useful Information? (Issue 12)other issuesScope and Definition (Issues 1 and 2)Criteria for Identifying the Acquirer in a Business Combination (Issue 4)Effective Date and Transition (Issues 13 and 14)FASB EXPOSURE DRAFTBusiness Combinations and Intangible AssetsSUMMARY OF COMMENT LETTERSThe following is a summary of the first 175 comment letters received in response to theSeptember 1999 FASB Exposure Draft, Business Combinations and Intangible Assets.1The breakdown of those letters by category follows. The number in parenthesesrepresents the subset of letters from associations. Category Number ofletters(associations)PreparersGeneral industry 37 (4)Banking 29 (7)High-tech 26 (5)Utilities 8 (1)Pharmaceutical 7 (1)Insurance 4 (1)AttestorsBig 5 CPA firms 5Other CPA firms 12 (9)Individuals 7InvestorsSecurity firms/investment bankers11 (1)Independentanalysts5 (2)Academic11 (1)Regulators3Other7TOTAL 172 (32)1This summary is actually of 172 of the first 175 letters because 3 letters were requests to speak at thepublic hearings with no follow-up letter addressing the Exposure Draft. We received 198 comment lettersas of January 25, 2000.Thirty-one of those 172 letters (primarily those from respondents in either the high-tech(19) or banking (10) category) did not specifically address the issues raised in the noticefor recipients. Instead, most of those respondents commented on the Board’s well-publicized decision to eliminate use of the pooling of interests method (pooling method) ofaccounting for business combinations. In general, their comments focused on publicpolicy considerations related to the Board’s decision to require all business combinationsto be accounted for using the purchase method and the perceived deficiencies of thepurchase method. The primary public policy points raised are summarized below.- Eliminating the pooling method would have far-reaching and detrimental effects on theentrepreneurial spirit in the technology community and the technological innovationsthat have fueled the economy in recent years. The pooling method is essential to thecontinued success of the venture capital industry and the emerging or high-growthsector. - The banking industry has experienced significant desirable consolidation in recentyears and is likely to experience further consolidation following the repeal of theprovisions of the Glass-Steagall Act. Because many of those transactions have beenaccounted for using the pooling method, the level of consolidation may be negativelyimpacted if that method is eliminated. The views expressed by those respondents specific to the purchase method are captured inthe rest of this summary, which focuses on the remaining 141 comment letters thatspecifically addressed one or more of the issues raised in the notice for recipients. ISSUES OF MOST CONCERN TO RESPONDENTS The concerns expressed by respondents most often were: - The need to have a method other than the purchase method to account for truemergers of equals- Whether it is appropriate to amortize goodwill and place a maximum on theamortization period- The appropriateness of allocating goodwill to asset groups for purposes of impairmentreviews - Whether all intangible assets including goodwill should be accounted for and presentedin the financial statements in a similar manner- Which intangible assets can be measured reliably enough to be accounted forseparately- Whether the cost of separately recognizing (identifying and measuring) intangibleassets exceeds the benefits- The appropriateness of recognizing an extraordinary gain related to an acquisition 2- Whether the disclosure requirements would provide useful information.Those more contentious issues, as well as new ideas suggested by respondents, areaddressed in more detail in the following sections. Elimination of the Pooling Method (Issue 3)The Exposure Draft proposed the elimination of the pooling method based on the Board’sconclusion that all business combinations are acquisitions. Issue 3 in the notice forrecipients specifically asked whether respondents agreed with the Board that all businesscombinations are acquisitions. More than three-quarters of the letters received addressedIssue 3. There was strong disagreement within the high-tech and banking sectors, whilerespondents in other categories were split. For example, the Financial ExecutiveInstitute’s Committee on Corporate Reporting noted in its comment letter (#19A): CCR’s internal discussions and debates over aspects of businesscombination accounting and the Exposure Draft of the Proposed Statementhave been vigorous. CCR members have mixed views on severalfundamental issues. A majority of the Committee believes that theExposure Draft goes too far in abolishing poolings of interests—a methodof accounting that has been accepted for decades and is most reflective ofthe circumstances of some business combinations. There is, however, asubstantial minority that agrees with the Board that the time has come toend pooling.Respondents that supported the elimination of the pooling method generally stated thatalthough a true merger of equals may exist in theory,