The Big Question – FDs shun merger accounting

The Big Question - FDs shun merger accounting

Almost one in four UK finance directors believes merger accounting should be banned outright.

When one company combines with another, applying merger accounting allows it to avoid recording goodwill as an asset. If goodwill was recorded, it would be amortised and reduce profits. In the case of British Aerospace taking over GEC Marconi, the hit to profits could be #350m a year (11 February).

In this week’s Accountancy Age/Reed Accountancy Personnel Big Question survey of 200 finance directors, some respondents cited past abuses to back their call for the scrapping of the treatment, while others said it would simplify business combinations. ‘As there is usually a dominant partner, the practice should be banned on ethical grounds,’ said one FD.

‘It is open to too much abuse,’ said another.

Another said: ‘Practicalities make life very different whereas normal acquisitions are straightforward.’

Supporters of merger accounting – who numbered one-third of respondents – said it was acceptable, but companies should follow the rules. ‘I don’t see why companies should not be merged as long as they are merging in a true 50:50 partnership,’ said one.

International Baccalaureate FD Stuart Chapman called on the Accounting Standards Board to work on ‘clarifying and simplifying the rules governing merger accounting’.

He added: ‘If organisations cannot or will not work to the rules, they will not be able to utilise merger accounting.’

Share

Subscribe to get your daily business insights

Resources & Whitepapers

Why Professional Services Firms Should Ditch Folders and Embrace Metadata
Professional Services

Why Professional Services Firms Should Ditch Folders and Embrace Metadata

3y

Why Professional Services Firms Should Ditch Folde...

In the past decade, the professional services industry has transformed significantly. Digital disruptions, increased competition, and changing market ...

View resource
2 Vital keys to Remaining Competitive for Professional Services Firms

2 Vital keys to Remaining Competitive for Professional Services Firms

3y

2 Vital keys to Remaining Competitive for Professi...

In recent months, professional services firms are facing more pressure than ever to deliver value to clients. Often, clients look at the firms own inf...

View resource
Turn Accounts Payable into a value-engine
Accounting Firms

Turn Accounts Payable into a value-engine

3y

Turn Accounts Payable into a value-engine

In a world of instant results and automated workloads, the potential for AP to drive insights and transform results is enormous. But, if you’re still ...

View resource
Digital Links: A guide to MTD in 2021
Making Tax Digital

Digital Links: A guide to MTD in 2021

3y

Digital Links: A guide to MTD in 2021

The first phase of Making Tax Digital (MTD) saw the requirement for the digital submission of the VAT Return using compliant software. That’s now behi...

View resource