Analysts in the dark over goodwill

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 disclose the period over which they amortise.

Company Reporting claims this is misleading shareholders and analysts about the value of the companies.

‘This leaves analysts somewhat in the dark as the life of goodwill is dependant solely on the judgement of directors and therefore disclosure is the only means by which directors can relay this information to analysts,’ said a Company Reporting 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 that the asset is infinite.

Those who Company Reporting says are not providing sufficient disclosure on goodwill include RPC, a packaging manufacturer with a turnover of £296m.

RPC states that negative goodwill is released to the p&l account but gives no indications as to what this is. But, Company Reporting estimates the economic life to be 14 years.

A chartered accountant at RPC said: ‘The number of years involved will vary as negative goodwill is made up of negative goodwill acquired on acquisition over a range of periods.’

‘Standard setters don’t like this or particularly understand it,’ said a spokesman at the Accounting Standards Board. He added that FRS10 might need to be revisited.Calls grow for merger accounting

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