Sen. Phil Gramm, chairman of the Senate Committee on Banking, Housing and Urban Affairs, said he is pleased by the decision of the Financial Accounting Standards Board to modify its plan to set new rules for accounting for corporate mergers.

"I want to congratulate the FASB for its innovative solution to a very difficult problem," Gramm said. "This is a solution that makes sense economically and will improve the quality of American accounting standards."

Beginning in March, the Banking Committee held hearings on FASB's plan to eliminate the "pooling of interests" method of accounting for corporate mergers and instead require an acquiring company to take a charge against earnings for "goodwill," or the difference between the purchase price and the book value of the acquired company.

"In this era, a company's value is more than bricks and mortar," Gramm said. "Much of a company's value is its position in the marketplace, its access to customers and its ability to retain good employees. My concern about FASB's original plan was its failure to recognize that the value of those intangible assets can grow, not just decline."

After participating in the Banking Committee's hearings, FASB announced a tentative decision that would allow goodwill to be reviewed for impairment and charged against earnings only in periods when its market value dropped below book value.

"Rather than taking an artificial approach that would force a company to write off goodwill without regard to its real value, FASB has found a common-sense solution in the impairment test," Gramm said. "The hearings and discussions that led to this solution are a model for how FASB and the Congress should work together."