Finance: Stripping Away the Asset Exaggeration the Accounting Standards Board New Ruling Makes It Harder for Companies to Cover Up Long-Term Problems
Trapp, Roger, The Independent (London, England)
COMPANIES WILL be required to be more rigorous about how they account for their assets following the publication of the Accounting Standards Board's latest standard.
Financial Reporting Standard 11, "Impairment of Fixed Assets and Goodwill", which comes into force for financial periods ending on or after 23 December 1998, is particularly designed to catch those companies that try to present a drop in the value of their assets as a temporary occurrence that will soon be followed by a recovery.
Sir David Tweedie, chairman of the ASB, said: "It will no longer be possible to pretend that long-standing losses with no realistic hope of recovery are only temporary."
He acknowledged the hostility his approach had received from businesses keen to demonstrate "smooth" improvements in performance while being subject to cycles in the property market, for instance. But he insisted that what he calls an attack on "scoundrel accounting" was consistent with his policy of introducing complete transparency and consistency to accounting. "It will introduce a welcome note of reality in the valuation of fixed assets," he said.
He also welcomed the fact that the approach, which had been open to consultation for several months, had largely been adopted by the International Accounting Standards Committee.
The standard is a follow-on to last December's FRS 10, which set out how goodwill and intangible assets could be carried in the balance sheet without being amortised, or gradually reduced in value, so long as they were subjected to annual impairment checks. …