Merger accounting could be outlawed in the UK after a decision to ban it in the US which will lead to pressure being put on standard-setters to follow suit.
A growing number of countries are banning merger accounting, which allows ‘merging’ companies to avoid an earnings hit caused by writing off goodwill.
British experts say a ban is now inevitable for the rest of the world given the pressure the move will put on the International Accounting Standards Board, where US members outnumber any other nationality.
The UK’s principles-based approach to accounting means there is less leverage to bend the rules on merger and acquisitions, but due to the 2005 deadline for European listed companies to adopt global standards it will be difficult to resist change.
Deloitte & Touche partner Ken Wild said: ‘It will be pressure on the IASB from the US and the feeling that we can’t be the only one (with a different rule) that will remove it from the UK.’
If the UK had allowed VodafoneAirtouch to apply merger accounting, it would have seen no hit to its profits. Instead, it takes a yearly amortisation charge of #674m to reflect the fair value, according to Peter Holgate, technical partner at PricewaterhouseCoopers.
The merger between Astra and Zeneca in 1998 just scrapped past the definition for a merger allowing the companies to avoid any hit to its profits.
Just one half of UK practices have implemented a pricing structure around auto enrolment implementation and advice - with many suffering increased costs
Deloitte's north-west Europe foray; BDO, Smith & Williamson investment paths; Shelley Stock Hutter; and Wilkins Kennedy discussed by editor Kevin Reed on our Friday Afternoon Live broadcast
Accountants should alter their perspective on auto-enrolment to maximise business opportunities, according to Eric Clapton.
Kevin Reed discusses whether new accountancy group Cogital can rival the Big Four...and its likely direction of travel