2002: What does Buffett think of the new goodwill accounting methods?

AUDIENCE MEMBER: Yes, sir. My name Adam Chud. I’m from Columbus, Ohio. I attend the Ohio State University.

My question is, your comments on the new standards for the accounting of goodwill?

WARREN BUFFETT: Yeah, the question about the new standards for goodwill.

Actually, if you read, I think, the annual report — maybe the 2000 annual report, and maybe even earlier.

But we prescribed — we said what we thought would be the preferable system for how goodwill was handled, namely, that it would not be amortized, and that combinations of companies be accounted for as purchases. And it pretty well is what ended up coming out of the accounting profession.

So, the goodwill rules now are in accord with what we believe they should be. And for a long time, they weren’t.

You might argue that it was against our interests to have what we think proper accounting has put in, because some people were averse to buying businesses because of a goodwill charge they would incur, whereas it didn’t make — it made no difference to us whatsoever. We just looked at the underlying economics.

So we may have a little more competition, even, on buying businesses simply because now, competitive buyers are not faced with a goodwill charge which may have bothered them but didn’t bother us. I regard the present goodwill rules as making sense.

Charlie?

CHARLIE MUNGER: Well, I agree.

WARREN BUFFETT: OK.

AUDIENCE MEMBER: Thank you.