Exclusive research from Intangible Business, one of the world’s largest independent brand valuation consultancies, has revealed that despite the introduction of IFRS 3, Business Combinations, over three years ago, goodwill arising from acquisitions of FT Global 500 companies has accounted for 47% of total deal value – a sum of £105billion. With the purpose of IFRS 3 being to improve the transparency of how companies report mergers and acquisitions, worryingly, the research also identifies that 53% of this goodwill, £57billion, was not described at all – even though the standard requires it.

The report, ‘International IFRS 3’, researched how IFRS 3 has been implemented across the world by companies in the FT Global 500, who report under IFRS outside the UK. It follows previous studies from Intangible Business, which revealed how the standard is being ignored in the UK by the FTSE 100 and how its US equivalent, FASB 141, is being ignored by the S&P100.

The key findings from ‘International IFRS 3’, which incorporates a number of FT Global 500 case studies, are:

• £105bn (47%) is allocated to goodwill, which is far too high and largely unexplained
• No explanation was given to 53% of this goodwill, £57bn, and 16%, £13bn, had only a limited description
• £73bn (32%) is allocated to identifiable intangibles, which is too low and insufficiently described
• Only £48bn was allocated on tangible assets, 21%
• The financial sector allocated the least amount to identifiable intangible assets, 25%
• Internationally, the UK was the best reporter, allocating the most to identifiable intangible assets, 37%. Australia was the worst, allocating the least, 20%

Thayne Forbes, joint managing director of Intangible Business, says: “Spending £105bn of shareholders’ money on acquisitions without sufficiently explaining what it’s for is totally irresponsible. The whole purpose of IFRS 3 is to provide transparency on acquisitions for investors. This is still not happening.”

Forbes continues: “The only way these regulations are going to make a significant impact on company reporting is if regulatory authorities police them. With over £200bn being allocated to goodwill across the world each year from IFRS reporting countries alone, I can only hope that this report serves as a catalyst for improvements next year.”

Forbes added: “As these accounting standards only apply to a fraction of the commercial deployment of the world’s intangible assets, the broader implications are worrying. If we can’t get it right on such a relatively small scale, what hope is there for the future? Annual reports will become more and more meaningless.”