Tighten reporting to stop mega-writedowns
More stringent reporting rules would curb valuation 'excesses', says Nick Hood
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