More than three out of ten public listed companies are misleading analysts by not revealing their goodwill amortisation policies, new research has found.
Of around 700 FTSE-listed companies analysed by financial reporting specialist Company Reporting, 35% of those that book goodwill on their balance sheets do not actually disclose the period over which they amortise. Company Reporting claims that this behaviour is misleading both shareholders and analysts over the value of the company.
‘This leaves analysts somewhat in the dark as the life of goodwill is dependant on the judgement of directors and therefore disclosure is the only way directors can relay this information to analysts,’ said a spokesman.
Accounting standard FRS 10, effective since December 1998, states purchased goodwill should be charged to the profit & loss account in the periods in which it is depleted unless a company can prove the asset is infinite.
One company not providing sufficient disclosure, according to Company Reporting, is packaging maker RPC, which has a #296m turnover. RPC states negative goodwill is released to the p&l account, but gives no indications as to what it is. Company Reporting estimates the economic life to be 14 years. An RPC accountant said: ‘The number of years involved will vary as negative goodwill is made up of negative goodwill acquired on acqui- sition over a range of periods.’
A spokesman for the Accounting Standards Board commented: ‘Standard setters don’t like this or particularly understand it,’ and added that FRS10 might need to be revisited.
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