Mergers play by the rules

UK companies are not abusing the availability of merger accounting rules, according to fresh evidence from accounts monitor Company Reporting.

The international accounting community, led by US-based Federal Accounting Standards Board, wants merger accounting – or pooling – banned, despite a general acceptance that it is appropriate in certain circumstances.

Blocking merger accounting is being discussed because of the difficulties in ensuring companies use pooling only where appropriate. Pooling is often more attractive than acquisition accounting, which can lead to goodwill amortisation charges, which hit profits.

British Aerospace, which is currently deciding whether to take a merger-accounting approach to its #16bn deal with GEC defence arm Marconi, is among the companies involved in the debate.

BAe finance director George Rose said the company was still discussing the proper approach and a decision would be made in the next few weeks.

Analysis by Company Reporting of more than 400 accounts indicated that only two of 224 companies involved in business combinations used merger accounting.

It believes a ban is insufficient punishment for bad auditing and wants to see the practice curbed, rather than scrapped outright.

‘If the UK ASB can prevent inappropriate use of merger accounting, then so can other standard-setting bodies,’ the accounts monitor said.

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