FRS forces change
Arrival of standard stresses the need for the majority of UK companies to revise their accounting methods for goodwill and intangible assets to conform to requirements. Phillip Inman reports.
More than 90% of UK companies will be forced to revise the way they account for goodwill and intangible assets following the release of FRS10, according to research published last week.
As few as 3% of businesses have accounting policies in line with the new requirements, resulting in a ‘change of enormous magnitude’ to carry through over the next year.
Edinburgh-based accounts analysts Company Reporting said FRS10 would hit the profits of acquisitive companies that currently write goodwill to their reserves.
‘Our database shows that only a few UK companies have accounting policies even remotely in line with its requirements,’ said a spokesman.
At the end of this year FRS10, which was published by the Accounting Standards Board in December, will require the capitalisation and depreciation of purchased goodwill.
The standard also demands that intangible assets such as brands and licences should be accounted for in the same way.
The ASB acknowledged that financial statements prepared under FRS10 will report increased net assets, lower earnings and lower returns on capital employed.
One company that is already going some way to meeting the requirements of FRS10 is Cheshire-based lighting company Ring plc, formerly Graystone.
Last year it capitalised ‘non-core’ goodwill as part of a twin-track approach that involved writing off ‘core’ goodwill to reserves. However, this year Ring has stripped out goodwill, which related to a loss-making subsidiary, after an assessment for impairment.
FRS10 calls on companies to assess capitalised goodwill for impairment at the end of the first full financial year if there is an indication that values being carried in the accounts are not recoverable.
See also Company reporting feature.