All U.S. companies initiating business combinations after that date would have to use the purchase method to account for the transaction. Experts expect a flurry of poolings in advance of the elimination of this popular accounting alternative as companies hurry to complete acquisitions while they still can do so without recording a large goodwill balance. We believe the answer to this question is no. The pooling method disregards the values exchanged in a business combination. Investors find it difficult to compare companies that use different accounting methods for what is essentially the same transaction.
Cash flows are the same no matter what accounting method a company uses.
The apparent boost in earnings under the pooling method is an artificial accounting difference rather than a real economic difference. Time Warner will account for their recently announced merger as a purchase. Deals of this size frequently are accounted for as poolings and often are contingent on the acquirer receiving pooling accounting treatment. AOL and Time Warner executives say purchase accounting will enable the new company, AOL Time Warner, to dispose of unproductive assets and conduct stock buybacks. This is not permitted if the company applies pooling accounting.