Typically, acquired goodwill is amortized over 10-20 years. It does, however, depress reported earnings. For buyers sensitive to transactions that create sizable drains on earnings due to amortization, the purchase accounting method proves to be about as popular as a class-action lawsuit. Many financial institutions refuse to consider any insurance agency purchase that proves dilutive to earnings as a result of amortization, regardless of the underlying cash flows. Under pooling, a transaction results in no reduction to reported earnings on the part of the buyer due to goodwill amortization.
Most public buyers love the pooling method.
Unfortunately, pooling transactions must meet a long list of strict conditions, so the pooling method can be difficult to use. Although it is generally acknowledged that the current purchase accounting methodology is flawed, goodwill amortization is not all bad. Goodwill and book amortization are unavoidable reminders of the actual costs of acquisitions, which are very real. Under the pooling method, in which no goodwill is booked to indicate an acquisition s price, the costs and financial impact of acquisitions are much easier to obscure. Several years ago, FASB suggested that the pooling method be eliminated completely.