By CA-TECHNET/FASB
New Economy leaders warned today that proposed changes to
long-standing corporate accounting rules make it tougher for
technology companies to build and grow, and potentially hurt a
leading driver of U.S. economic growth.
These leaders testified today before the Financial Accounting
Standards Board, a private sector standard-setting body
supervised by the Securities and Exchange Commission.
"These proposed rules are not just about Silicon Valley,
they're about our entire economy," said Robert Katz, CEO of
TechNet, a network of senior executives of the nation's leading
technology companies. "From banking to telecommunications,
manufacturing to energy, our economy is changing thanks to an
unprecedented revolution in technology.
"For that very reason, it's critical that these new
accounting rules not be developed in a piecemeal fashion,"
Katz added. "We realize that accounting for intangible
assets presents a challenge and want to work with FASB and take
a look at the big picture -- to take the rules written for a
20th century economy and make them work for the 21st."
Katz and other industry leaders testified before FASB,
which held a hearing in San Francisco on changes to
accounting standards for business combinations.
"The elimination of the pooling method will discourage
mergers of knowledge-based companies and will have a chilling
effect on the flow of venture capital to promising new sectors.
Poolings have proven to be an especially effective and efficient
way for companies to acquire research and related intellectual
property," said Jim Barksdale, President of the Barksdale
Group and former CEO of Netscape. "From my own experience,
I can tell you that the AOL/Netscape merger would not have
occurred if pooling had not been an option."
"FASB's proposals are a direct frontal assault on the
key ingredients fueling our New Economy: talented professionals
and great ideas," said John Doerr, Partner in Kleiner
Perkins Caufield & Byers.
"Before moving piecemeal to eliminate pooling and
significantly impact the economy's growth, FASB should complete
its project on accounting for intangibles and also work with the
Garten Commission," added Doerr, who is a member of the
Garten Commission.
Chaired by Yale School of Management Dean Jeffrey E. Garten,
the commission was designated by Securities and Exchange
Commission Chairman Arthur Levitt. Garten's panel is looking at
the whole picture and will recommend how the financial reporting
model can best reflect the role of intangible assets in the New
Economy.
The tech leaders also argued that:
- FASB's proposal to eliminate pooling would mischaracterize
all mergers as purchases, and thus conflict with FASB's
mission to develop "neutral standards that result in
accounting for similar transactions and circumstances
similarly and for different transactions and circumstances
differently."
- FASB's proposal will not improve the financial statement
information that investors rely upon.
- Altering these accounting principles could adversely
impact the New Economy by discouraging mergers and
acquisitions that foster efficiency, innovation, creativity
and growth.
- The business combination rules, in conjunction with
proposed changes to the rules on stock option standards,
would make it tougher for tech companies to attract and
retain the skilled workforce they need, driving employees
away from small companies and hurting economic growth.
FASB is currently reviewing two changes:
- Accounting for business combinations. FASB has proposed
eliminating use of the "pooling of interests"
method of accounting in corporate mergers and acquisitions.
- Accounting standards for stock-based compensation. FASB
has proposed requiring companies that reprice options to
record as an expense the difference between the new lower
price and any subsequent increase in the share price. As a
result, companies would be required to take a charge against
earnings equal to the difference between the new option
price and any subsequent increase in the share price.
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