Sage defends goodwill policy
Following a final year profit increase of 11%, Sage has defended its controversial goodwill accounting policy.
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The accounting software company chooses not to amortise goodwill – one of few UK companies to take this approach. As a result it has over £830m worth of goodwill on its balance sheet.
But Paul Harrison, FD at Sage, said that this will become the norm as the UK adopts international standards in 2005. ‘Clearly we are all going to move to international GAAP by 2005,’ he said. ‘The new exposure draft out from the International Accounting Standards Board moves nearer to the US system and that will, over time, become the norm. We’ve long held the view that it’s far more meaningful to subject goodwill to a rigorous impairment test,’ he continued.
He went on to say arbitrary amortisation over five, ten, or 20 years is relatively meaningless and that it potentially misses what could be a meaningful conversation with shareholders.
‘It’s very interesting to see the way US GAAP and now international GAAP have moved,’ he said. ‘They have moved to Sage’s approach to goodwill and there’s no question, at least in my view, that this arbitrary amortisation still permitted by FRS 10 is largely becoming dis-credited.’