February 2000

FASB Not Likely to Bow to Congressional Pressure on Business Combinations

Timothy Lucas, director of research at the Financial Accounting Standards Board, recently told NYSSCPA members that the current FASB members will not bow to political pressure from Congress on the business combination issue or, for that matter, any of the board's other important agenda items. Lucas said the board might even react in the opposite direction of those applying the pressure, even if doing so would jeopardize FASB's very existence.

Lucas made his comments during his third annual visit with the Society's Financial Accounting Standards Committee and invitees from other NYSSCPA committees. He said the FASB staff was in the midst of summarizing the more than 200 comments received regarding its September 1999 exposure draft, Business Combinations and Intangible Assets. He said some of the comments advocate permitting a merger or pooling of interests between equals. The exposure draft, if adopted, would eliminate pooling and require the use of purchase accounting.

Lucas said that the proposed accounting for goodwill under the purchase method remains one of the most troublesome areas for FASB to address and that none of the proposed treatments is attractive--the board settled on what it considered to be the least of the evils.

Lucas explained that the first part of the business combinations project does not address the accounting for research and development, intangibles, and unique issues raised by combinations with entities dealing in the "new economy." He said that the board will save these issues for a major follow-up project. In response to a committee member's question, Lucas said that the current project does not address business combinations involving not-for-profit entities.

"There are tough questions with not-for-profits," he said, "not the least of which is the 'price paid' by one entity for the other."

FASB held public hearings on business combinations in February. Watch The Trusted Professional and http://www.nysscpa.org for updates on the issue.

Stock Options, Derivatives, and Other Issues

Lucas reported that the long-awaited interpretation of APB Opinion 25 on accounting for stock compensation is due out shortly.

"It has been very difficult because the standard is not built upon concepts," Lucas said, "In fact, it is built upon an exception to the rules."

He said the board tried to be fair to the spirit of the original pronouncement in developing the interpretation. The interpretation, among other things, will say that outside directors are employees for purposes of accounting for stock options issued to them.

Because of implementation issues identified by FASB's derivatives implementation group, the board has decided to fast-track several possible amendments to its Statement 133 on derivatives. The board plans to finalize the amendments by June 30 so that they will not trigger any delay of the standard's implementation dates.

"The SEC would have no tolerance for any further delay in the effectiveness of Statement 133," Lucas said.

In response to issues identified in a letter that Financial Accounting Standards Committee Chair Robert E. Sohr sent to him prior to the meeting, Lucas agreed that FASB would build greater confidence in the standards-setting process if it issued statements that never required amendments or modification. But he said that the board cannot always wait until it anticipates all possible answers or problems without bringing the process to a grinding halt. According to Lucas, FASB must continue to listen after it issues a statement, and if there are problems, fix them. *