Under new rules proposed by the Financial Accounting Standards Board (FASB), companies would have to expense merger-related costs as they happen, rather than using one-time reserve funds, the Wall Street Journal reported.

In some cases, companies that dip in later to improve their earnings picture have used the reserve funds improperly. Reserve liabilities are often set up at the time of merger and are used for expenses such as firing staff or closing the factories of the acquired company, the Journal reported.

FASB, which writes U.S. accounting rules through the authority of the U.S. Securities and Exchange Commission, is introducing the new reserve liability rule as part of a bigger effort dealing with mergers and acquisitions. FASB is working with its London-based counterpart, the International Accounting Standards Board, to revise the rules to help investors get a better idea of companies' true financial condition.

The proposed change would "level the playing field for restructuring costs, whether they are incurred to restructure an acquired operating activity or an existing operating activity," Ronald Bossio, a senior project manager at the FASB, based in Norwalk, CT, told the Journal.

The new rules are set to take effect with deals done on or after Dec. 15, 2005. The package is due out next quarter and will be subject to public comment before being finalized, the Journal reported.

"Restructuring reserves set up in connection with acquisitions have long been used to hide the subsequent poor performance of companies from their investors," Lynn Turner, former SEC chief accountant, told the Journal. "The FASB stopping this abuse is long overdue."