Summary

In response to a congressional request, GAO: (1) reviewed selected countries' practices for accounting for the amount of payment made in excess of the fair value of acquired companies' actual assets; and (2) provided data related to foreign direct investment in the United States.

GAO found that: (1) Canada and Japan allow firms to capitalize and amortize the costs against future income; (2) the United Kingdom and West Germany allow firms to choose between capitalizing and amortizing or writing off the costs against shareholder equity to avoid dilution of future earnings; (3) international accounting standards allow either type of accounting methods; (4) foreign direct investment grew from $28 billion in 1975 to $209 billion in 1986; (5) foreign mergers with and acquisitions of U.S. firms were a major form of foreign investments; and (6) investment in U.S. assets has increased because of the large U.S. trade deficit, its strong economy, and the decline of the dollar.