UK may ban merger accounting
Mergers in the UK could be stopped completely, and all transactions may become acquisitions, if the International Accounting Standards Boards follows the US example of introducing a ban on 'merger accounting'.
UK plc has to use international standards from 2005, but the IASB appears to have decided to stop merger accounting by adopting the US position.
Merger accounting allowed ambitious executives to avoid a goodwill hit to the bottom line and any adjustments to the value of the assets and liabilities by not having to identify an acquirer.
The alternative rule – acquisition accounting – requires the assets and liabilities of the acquired company only be restated at their current value and that goodwill be recognised on the consolidated balance sheet.
This week German carmaker BMW, led by chairman Joachim Milberg reported a 60% increase in full-year operating profits to ? ¬23.24bn (£2bn) while reporting under international standards for the first time.
The new merger standard would force companies like BMW to rethink future restructuring. Sir David Tweedie, head of the IASB, last week said a new standard ‘probably’ would ban merger accounting.
