Roundtable Meeting and Discussion of "Accounting for Goodwill"

Statement of Alfred M. King
Valuation Research Corporation

10:00 a.m., Wednesday, June 14, 2000

We hold these truths to be self-evident:

Our recommendations, while not ‘self-evident’, are as follows:

  1. Require Purchase Accounting. There are so few true ‘Mergers of Equals’ it is not worth trying to ‘save’ Pooling Accounting.

  2. Require Buyers to identify the assets acquired, including major categories of Intangibles.

  3. Develop estimates of values for clearly identifiable intangible assets in just a few major categories:

  4. Develop estimates of lives of those assets that have expected lives shorter than 20 years, e.g., work force, customer base.

  5. Write off those assets over expected life, but ‘below the line’ because this is a non-cash charge.

  6. Having valued (and disclosed) the other identifiable assets, add them to the residual Goodwill.

  7. Do not set up a pre-determined amortization period, unless the buyer wishes to do so, in which case the estimated lives should be used.

  8. For the Identifiable Intangible assets plus Goodwill, mandate annual testing for Impairment.

  9. Impairment tests, based on residual income or some other means of assessing future income and cash flows, are no more difficult than many other accounting estimates. Companies make these estimates. Appraisers make these studies. Auditors can review all the inherent assumptions for reasonableness.

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