“Pooling of Interests” Accounting

A now-obsolete method of accounting that allowed two companies to combine their balance sheets during a merger or acquisition.

The Financial Accounting Standards Board rendered this practice impermissible in 2001 via Statement No. 141. Nowadays, only the “acquisition method” may be used when accounting for mergers and acquisitions. When this accounting method was still in use, it allowed both assets and liabilities to be transferred from the company being acquired to the company initiating the purchase at book value. Notably, goodwill could not be booked in this way. The FASB noted the limitations of treating goodwill in this way and also wanted to streamline accounting standards so that mergers and acquisitions were assessed in a singular way. By eliminating “pools of interests” accounting, every U.S. merger and acquisition could be compared and contrasted using the same method.

 

EXAMPLE:

Accountant One: “Man. I remember the good old days when we could have used “pooling of interests” accounting to assess this acquisition.”

Accountant Two: “Your ‘good old days’ sound pretty boring, my friend.”