Fasby

Generally speaking, it appears that the decision to enact FASB Statement 142 in 2001 was well founded. This represented the first major change to the accounting treatment of goodwill in over 30 years, which some would argue was long overdue. Further, it placed greater accountability for the goodwill created by merger & acquisition (M&A) activity into the hands of corporate management. Specifically, frequent (and visible) goodwill write-offs may represent inadequate strategy or decision making capability of a company's leadership.

Users of financial statements probably derived many benefits from the enactment. First, I'm sure the financial community (eventually) applauded the adoption of a consistent set of governing rules surrounding goodwill and its subsequent amortization. Financial statements of companies that acquire goodwill would better reflect the true economics of these assets and make it easier to gauge their ability to generate cash. Conversely, subsequent and distinct impairment charges became visible and open to scrutiny.

The adoption of FASB 142 was probably well received by corporate America for obvious reasons. Companies weighed down with substantial goodwill would be able to realize an initial boon to their bottom line because of the elimination of the mandatory amortization expense. Instead, a company could choose to keep goodwill listed as an asset on their balance sheet indefinitely, as long as it was periodically tested for impairment. Second, greater M&A activity would be made possible because of the elimination of the need to take large, routine earnings write downs for goodwill.

With caution, however, we should also consider the potential Ð''negatives' of FASB 142. Financial reporting and, specifically, the ability to decipher financial reporting must have become a far greater task. Year-over-year comparisons and the ability to trend and forecast