Tighten reporting to stop mega-writedowns

THE NEWS that Hewlett Packard has been forced to write down its $10.3bn investment in Autonomy by 85% only 15 months after completing the deal will come as no great surprise to critics of the testosterone-fuelled M&A transactions so common in the past few years.

Even before today’s bombshell, our H-Score® rating of Hewlett Packard was only a marginal 34 out of a maximum of 100, and heading sharply south.

This latest debacle comes just after research showed that the Stoxx Euro 600 Index companies wrote off the staggering sum of €76bn goodwill in 2011, a figure big enough to fund half a Greek bail-out and more.

When will international financial reporting standards be tightened up to force over-ambitious executives to write off acquisition goodwill over a fixed period of no more than, say, three years, rather than leaving valuations to their own discretion and academic verification by their auditors?

If these sorts of mandatory write-down also affected their bonus packages, maybe there would be fewer of these crazy mega-deals and, more importantly, fewer shocks for shareholders, whether or not they are caused by alleged financial irregularities.

Nick Hood is head of external affairs at Company Watch

Related reading

tax dictionary