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A Brief Background on Accounting for Business CombinationsAlthough there are conceptual difficulties with the pooling method, the underlying problemthat arose was the introduction of alternative methods of accounting for business combinations(pooling versus purchase). Numerous financial interests are involved in a business combination,and alternate accounting procedures may not be neutral with respect to different interests. That is,the individual financial interests and the final plan of combination may be affected by the methodof accounting.Until 2001, accounting requirements for business combinations recognized both the pooling andpurchase methods of accounting for business combinations. In August 1999, the FASB issued a reportsupporting its proposed decision to eliminate pooling. Principal reasons cited included the following:■ Pooling provides less relevant information to statement users.■ Pooling ignores economic value exchanged in the transaction and makes subsequentperformance evaluation impossible.■ Comparing firms using the alternative methods is difficult for investorsfirm gains control over another.GAAP eliminated the pooling of interests method of accounting for all transactions initiatedafter June 30, 2001.[2] Combinations initiated subsequent to that date must use the acquisitionmethod.
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