IASB under fire over amortisation

Link: IASB held up on technical issues

The IASB, led by Sir David Tweedie, has proposed a ban on merger accounting as well as the option to amortise goodwill. But Accounting Standards Board chairman Mary Keegan hit out at some of the proposals.

‘The IASB has picked up (the proposals) from what FASB implemented a year ago in the US,’ said Keegan. ‘While convergence is positive, no one has had a chance to see if they work.’

The IASB dismissed claims that it was pandering to the US so that America would adopt international rules over US GAAP. Annette Kimmitt, senior project manager at the IASB, said: ‘This is about the quality of standards and not just convergence. The amortisation charge is a meaningless number. The board took the view that permitting options is a less rigorous approach.’

Under the plans there would be no option to amortise goodwill, instead it would be tested annually for impairment. According to the IASB, goodwill amortisation is too arbitrary and analysts are said to disregard the charge.

Keegan added the move to ban merger accounting has arisen from a problem that only exists in the US.

The ASB also had reservations over the decision which could force many smaller companies to go through the process of impairment testing.

‘It is not clear whether these measures will improve financial reporting in the UK. This might be different if there is more time to review what happens in the US,’ said Keegan.

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