Comments on SEC practice as to pooling of interests;

              Comments
on SEC Practice
as to Pooling
of Interests
by Howard L. Kellogg
Howard L. Kellogg, partner in the
New York office, spent ten and one-half
years on the Securities & Exchange
Commission staff, where he was assistant
chief accountant, before joining TRB&S
in 1953. He has been intimately in­volved
in many conversations with the
SEC over the years involving the ac­counting
for proposed business combina­tions.
This article summarizes his expe­rience
in specific cases. His objective is
to enable the reader to distinguish those
business combinations which are clearly
poolings from those which may be pool­ings.
It is important, however, to bear
in mind that the pooling concept is still
developing.
Mr. Kellogg is a member of the
American Institute's Committee on Re­lations
with the SEC and Stock Ex­changes,
and is also a member of the
American Accounting Association, the
New Jersey Society of CPAs, and the
Institute of Internal Auditors. He grad­uated
from the University of Iowa in
1931, where he received a B.S. in Com­merce.
iiillHIilllUI : " •" . . -, : ^ - • * • ' : . • • : • • " v - ' ^ • ; • . : ? ; ; • ; : • ; ' . . " > : - '•
Determining the proper accounting for business combi­nations
has become increasingly uncertain in recent
years. The general accounting principles applicable to
business combinations are presented in Accounting Re­search
Bulletin No. 48 issued in 1957 by the Committee
on Accounting Procedure of the AICPA. (The predeces­sors
to ARB 48 were ARB 40, issued in 1950, and Chapter
7(c) of ARB 43, issued in 1953.) General criteria are set
forth which define a pooling of interests as a business com­bination
which is characterized by continuity of owner­ship
interests, of management, and of business.
Over the year these criteria have proved to be extremely
difficult to apply in practice. The desire of businessmen
and accountants alike to minimize or eliminate goodwill
has led to a liberal interpretation of the guidelines so as
to favor pooling over purchase whenever possible.
As a result, interpretations of the pooling criteria have
been stretched to the point where in recent months com­binations
which in the past would definitely have been
considered to be purchases, have been held to be poolings.
Thus, the Accounting Principles Board, in the recently
issued Opinion #6, stated the following:
DECEMBER, 1965 33