The UK is facing increased pressure to ban ‘merger accounting’, a move that would ‘dramatically’ affect company profits, writes Michelle Perry.
The US Financial Accounting Standard Board will decide this week whether to introduce a ban on merger accounting and if it does huge pressure will be brought on the UK, through the International Accounting Standards Board, to follow suit.
Currently mergers between companies avoid the need to include the cost of goodwill in the transaction. However in an acquisition goodwill has to be accounted for and depreciated. Forcing all transactions to become acquisitions could forced businesses to depreciate unprecedented sums.
Ken Wild, technical director at Deloitte & Touche, said: ‘There’s a lot of abuse in the US. Australia has already banned it. In the UK we’re more principles-driven. We’ve got something that’s working. But because of international harmonisation we might have to implement it here.’
Peter Holgate, senior technical director at PricewaterhouseCoopers, said: ‘It’s a tricky one. Genuine mergers are quite rare, but there are a few. So the question is how to define it as letting the few in without letting the rest.’
It is widely believed that if FASB is successful, the International Accounting Standards Board will adopt similar plans. All European quoted companies must comply with global accounting rules by the latest 2005.
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