400 Planning and Forecasting
immediately, whereas the U.S. firm would take the charge through its future
income statements.^45
It could be argued that the profit differences that result from the dispar-
ity in accounting for goodwill are purely cosmetic, and that they should not
cause a U.S. bidder to be at a disadvantage in the acquisitions market. That is,
the impact of the acquisition on the bidder ’s future cash f low should be the
central issue. Differences in accounting policy should not have a direct impact
on future cash f low. However, it is well to remember that, cash f low aside, the
reported numbers take on a significance in their own right to the extent they
are (1) a factor in determining managerial compensation or (2) are used by
lenders to monitor compliance with debt agreements.
The U.S. GAAP requirements for goodwill accounting appear to be on
the verge of major changes in 2001. The requirement to amortize goodwill
would be eliminated in favor of a policy that would require goodwill write-offs
only in cases where the goodwill is considered to be impaired:
From the date of issuance, all goodwill would be accounted for using an im-
pairment approach. Under that approach, goodwill would be reviewed for im-
pairment, that is written down and expensed against earnings, only in the
periods in which the recorded value of goodwill is more than its fair value.^46Some countries may criticize this change in goodwill accounting as contribut-
ing to international GAAP diversity. The change will also be seen as roughing
up and not smoothing out the playing field.
The issue of international competitiveness was also raised with respect
to the FASB statement on postretirement benefits accounting, SFAS No. 106,
Employers’ Accounting for Postretirement Benefits Other Than Pensions.^47 The
Statement requires companies to apply accrual accounting to what are termed
other postretirement benefits, mainly health and life insurance. When pro-
posed, there was fierce lobbying against issuing the statement. Some excerpts
from a statement to the FASB by the then Chief Financial Officer of Chrysler
Corporation make the key points:^48
This higher cost recognition will depress reported profitability, and thereby ul-
timately discourage capital formation in job-creating enterprises in the U.S.
There will be a powerful incentive to move our employment base to Canada,
Europe and Third World countries.
Foreign based companies will not be forced to adopt your new rules—all
other things being equal, a European or Japanese company will report a billion
dollars more profit doing the same business as Chrysler. In that environment,
we will simply be unable to compete fairly for investor capital. Ultimately, I be-
lieve you will have added to the trend of foreign ownership of our U.S. indus-
trial base.One can only hope for the success of the IASC program to increase interna-
tional harmony in reporting practices, if the arguments concerning the anti-
competitive potential of diversity in international GAAP are meritorious.