Seldom has a proposed change in accounting rules generated such a vociferous response from corporate America. The US Financial Accounting Standards Board (FASB), in its efforts to bring clarity and consistency to accounting for business combinations, has infuriated chief executive officers, chief financial officers, and venture capitalists with its proposal to eliminate pooling accounting. Silicon Valley executives decry this devil that will destroy the so-called new economy. Senior executives from powerful corporations are invoking the national interest to preserve the M&A engine that, by their reckoning, has brought the United States unprecedented prosperity. And the debate is being watched closely by companies around the world that abide by US accounting standards or are considering M&A deals in the United States. Are opponents of the rule change correct? Could accounting kill the new economy?

We think not. On the contrary, the proposed change is a positive one. In fact, pooling accounting encourages the destruction of a great deal of value, so putting a stop to the practice is an excellent move. It will no doubt present companies with challenges, but, far from making mergers and acquisitions grind to a halt, it will help companies that respond positively to end up...