In “So That’s Why It’s Called a Pyramid Scheme” ( JofA, Oct.00, page 91) , the article states that, “during a review and compilation engagement for a small client....”

Will you please explain what a review and compilation engagement is? I thought we only had three levels of engagements and not a mix-and-match set.

If in our own publication we cannot keep it straight, how can we hope that non-CPAs will be able to?

Stanley Balsky, CPA
Rutherford, New Jersey

I believe the article, “Everyone Out of the Pool” ( JofA, May00, page 45) , overlooked several significant issues and that its examples contained some debatable points.

The authors concluded that companies generally pay a premium to complete a merger by the pooling method. According to the article, companies that rush to use the pooling method before the FASB’s proposed elimination do so at the expense of shareholders. Unfortunately, the research failed to consider many factors and, as a result, had several questionable implications.

The article strongly implies that Pfizer paid at least an 8% pooling-price premium in its merger with Warner Lambert. In reality, little or none of the price paid was attributable to the pooling method. The premium paid was due to a heated takeover battle. Pfizer was determined to acquire Warner Lambert at almost any cost due to the blockbuster drug Lipitor.

The article then cited the AOL and Time Warner merger as a case in which a company elected the purchase method and avoided paying a price premium. It said analysts would see through reported earnings charges and look at cash earnings. Nowhere did the authors mention that prior entertainment deals had been completed that reduced earnings.

Goodwill is the crucial amortization expense that is incurred when using the purchase method. Industry-specific characteristics probably played a large role in the use of the purchase method.

Finally, the advantages of share buybacks are touted as another disadvantage to the pooling method. While the announcement of a buyback program often temporarily raises a stock’s price, the long-term effect is less clear. Many companies announce buybacks that not only last several years, but also are never fully completed. Few of the buybacks announced after the 1987 crash were completed. Many times the shares repurchased replaced only shares issued through employees’ stock options (Standard and Poor’s, 6-14-00). Even the tax advantage of share buybacks is a “wash,” considering that a pooling transaction is nontaxable.

Based on the examples cited, one could make compelling arguments against the authors’ conclusions. Shareholders may not be paying pooling purchase premiums. If, as the efficient market theory strongly implies, the market sees through the reported earnings, it should also see through the structure of the deal. It is contradictory to imply the market is efficient with respect to earnings but inefficient with respect to the structure of a deal.

William M. VanDenburgh
Baton Rouge, Louisiana

“Facing a Hobson’s Choice” ( JofA, Sept.00, page 57) was an excellent and timely article. The importance of making decisions in connection with IRA distributions and beneficiaries cannot be overstated, and CPAs are taking on awesome responsibilities in this area. Thanks for publishing the story.

I did find the title unfortunate, and it is disappointing that the JofA editorial staff was not familiar with Mr. Hobson’s operations. According to the Morris Dictionary of Word and Phrase Origins definition, Thomas Hobson required customers at his Cambridge livery stable to take the horse nearest the door. He tolerated no picking and choosing. Thus, if we were truly in a “Hobson’s choice” situation, there would have been no need for the article.

Joe Richardson, CPA
Gainesville, Florida

Editors’ Note: We agree—not every choice an IRA owner faces is a Hobson’s choice. However, we felt the term accurately described the spirit, if not the letter, of the limited options some IRA owners had. Taking distributions over the owner’s life expectancy without recalculation might not be the option “nearest to the door,” but under some circumstances it would be the only choice available.

I just took the uniform CPA exam, and I believe I passed all four parts on the first try.

I feel it is a great equalizer and allows people, such as myself, who have attended so-called “third-tier” educational institutions to demonstrate the knowledge we obtained rather than the amount we paid for an education.

Many students at the third-tier schools are unfairly stigmatized and not afforded the same opportunities as students from Ivy League institutions. The Big Five, and large regional accounting firms rarely, if ever, recruit on non-Ivy-League campuses. The difficulty of the exam levels the playing field for those of all educational backgrounds.

Joseph Sokolovic
New York City

I’ve been an AICPA member for about 12 years, but I left public accounting nine years ago. For the first four years or so after leaving, I found little to excite me in the Journal of Accountancy. However, that changed in the last few years.

The Technology Workshop and other articles on software, databases and general spreadsheet tips have been very useful to me in the private sector. I now keep almost every month’s JofA for tips.

Thanks, and keep publishing these good articles.

Stephen Tyson, CPA
Glasgow, Kentucky