Business set for standards clash over writedowns
Fears are growing that UK businesses could be forced to make massive writedowns if amortisation is replaced with a new rule by the International Accounting Standards Board.
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Sources close to the IASB have made it clear that businesses face making the same adjustments as Dutch and US companies already dealing with a similar change in their accounting rules.
Consultation on the change ends tomorrow and a draft standard is expected to be finalised by the end of 2003. While UK standards allow companies to amortise goodwill over a set period of time, the IASB proposal rules that goodwill should be re-evaluated every year.
Such a rule came into force in the US during 2002 and recent weeks have seen US and Dutch companies – who use US standards – reporting heavy losses due to massive write-downs of goodwill. Dutch insurer ING, for example, reported a £6.5bn loss after making an £8.7bn writedown after revaluing assets acquired in the mid-nineties. Qwest, the US telecommunications company was forced to write down $22.5bn (£15bn).
Amin Amiri, managing director of a2e venture catalysts, is in favour of revaluing goodwill, arguing it is the only way to rid balance sheets of ‘over payments’ for acquisitions in the nineties. ‘Amortisation is easy but it is not proper accounting,’ he said.
Nigel Sleigh-Johnson, head of financial reporting at the ICAEW, said re-evaluating assets was an enormous and therefore expensive task. He said the institute was opposed to the IASB plan to ‘prohibit’ amortisation entirely, arguing it should allow an option ‘for certain companies to amortise goodwill’. Annette Kimmitt of the IASB said: ‘I don’t think that permitting an option, is an option,’ she said.