View from City Road: When goodwill is not what it seems
Your support helps us to tell the story
From reproductive rights to climate change to Big Tech, The Independent is on the ground when the story is developing. Whether it's investigating the financials of Elon Musk's pro-Trump PAC or producing our latest documentary, 'The A Word', which shines a light on the American women fighting for reproductive rights, we know how important it is to parse out the facts from the messaging.
At such a critical moment in US history, we need reporters on the ground. Your donation allows us to keep sending journalists to speak to both sides of the story.
The Independent is trusted by Americans across the entire political spectrum. And unlike many other quality news outlets, we choose not to lock Americans out of our reporting and analysis with paywalls. We believe quality journalism should be available to everyone, paid for by those who can afford it.
Your support makes all the difference.Those looking for guidance about how to account for goodwill should ignore yesterday's discussion document from the Accounting Standards Board, and concentrate on the directive about how to treat goodwill when businesses are sold.
That stipulated that any goodwill written off when a business was acquired should be taken into account when calculating the profit on its disposal. Since this provision took effect two years ago, virtually every company - with Hanson a notable exception - has turned disposal profits into embarrassing losses. That not only confirms that far too many companies make disastrous acquisitions, it shows just how quickly so-called goodwill can evaporate.
Acquisition accounting means goodwill is not what it seems: it is the balancing figure between the cost of the acquisition and the assets acquired - reduced by provisions to smooth the deal on its way. Thus the goodwill created by the 1980s spending sprees of WPP and Saatchi & Saatchi had less to do with the advertising accounts and executives acquired (whose value proved as short-lived as the economic boom) than with the amounts the City was persuaded to put up for the deals.
If the 'value' of goodwill can shift so dramatically, the last place it should be is on the balance sheet - and the ASB's proposal that it should be depreciated over an arbitrary 20-year period suggests it, too, realises that goodwill is not a normal asset. Writing it off immediately is a far better recognition of economic reality.
Join our commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies
Comments