Magazine for Senior Financial Executives: About disclosure – Letters to the Editor

About disclosure – Letters to the Editor – Letter to the Editor

I JUST FINISHED READING “Align the Books?” (November 2002) and wondered why so little mention was given to the impact of purchase accounting in stock acquisitions. In a stock acquisition in which the buyer pays a significant premium, the goodwill would not generally be amortized by the buyer for tax purposes, leading to an annual difference. An even larger difference arises when companies are required to charge off their goodwill under the new accounting rules. For example, I suspect that JDS Uniphase had significantly more taxable income than book income last year, due to the $50 billion charge-off of intangible assets acquired in old deals.

Granted, these types of differences generally increase taxable income (as compared with book income). But still, this difference alone makes unfeasible the book/tax conformity proposals that you mentioned.

Russ A. Daniel

Grant Thornton LLP

Via E-mail

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