RegulationAccounting StandardsCompanies in goodwill hole

Companies in goodwill hole

Companies continue to bury the worth of acquisitions in goodwill, depriving investors of vital information as the global financial crisis rages on

Thayne Forbes, joint managing director of Intangible Business

Thayne Forbes, joint managing director of Intangible Business

Research showed that, despite the introduction of IFRS3, the business
combinations standard, three years ago, 500 of the world’s biggest companies
reporting under international standards outside the UK racked up a £105bn worth
of goodwill in their acquisitions, 47% of the total deal value.

Brand valuation experts Intangible Business found that 53% of this goodwill,
£57bn, was not described at all in its IFRS3 study, even though the standard
requires it.

Thayne Forbes, joint managing director of Intangible Business, said:
‘Spending £105bn of shareholders’ money on acquisitions without sufficiently
explaining what it’s for is totally irresponsible. The whole purpose of IFRS3 is
to provide transparency on acquisitions for investors. This is still not
happening.’

Unlike US GAAP, which will be changing when SFAS141R comes into force in
2009, companies reporting under IFRS are required to disclose the nature of the
intangible assets which comprise goodwill and explain why they cannot be valued
separately.

A large part of goodwill can be chalked up to future earnings, but Intangible
Business reported that the key factors such as brand value and customer
relationships were still not adequately being accounted for.

Questions have been raised in the past as to whether some companies have paid
over the odds.

The $1.2bn (£690m) price tag on Google’s purchase of Youtube was one major
deal that saw $1.1bn of goodwill balanced out by $0.2bn of intangible assets,
even though the Youtube brand name was widely thought to be the driver for the
deal.

Forbes added: ‘The only way these regulations are going to make a significant
impact on company reporting is if regulatory authorities police them.

‘With over £200bn being allocated to goodwill across the world each year from
IFRS reporting countries alone, I can only hope that this report serves as a
catalyst for improvements next year.’

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