Australia should follow UK in accounting for goodwill

Australia should follow UK in accounting for goodwill

Australia should follow the United Kingdom's accounting rules for goodwill during corporate takeovers, according to a University of Queensland PhD thesis.

For her thesis with the University's Commerce Department, Dr Keitha Dunstan examined the way companies taking over subsidiaries handled the aspect of goodwill.

She studied all corporate takeovers by listed companies of other listed companies in Australia over the past decade.

She found many companies avoided recording the goodwill they were acquiring because of the onerous provisions of Australian accounting standard (rule) AASB1013.

This standard requires that goodwill be charged as an expense against profits until it is written off over a maximum of 20 years.

However, in the United States, goodwill may be written off over a 40-year period and in the United Kingdom, goodwill did not have to be written off unless it was found to have diminished after each year, Dr Dunstan said.

This placed Australian companies at a competitive disadvantage in the international marketplace for corporate takeovers, she said.

She said it would be beneficial for Australia's accounting standards related to goodwill to harmonise with those in the United Kingdom.

Her thesis did find some cases in which acquiring companies ascribed a true, rather than an underestimated, value to the subsidiary's goodwill even when this hurt short-term profitability.

This was most common when the market could not ascribe a value to the takeover and the acquiring company wished to attract shareholder interest, she said.

For more information, contact Dr Dunstan (telephone 07 3864 2017).