Goodwill arising from acquisitions of FTSE 100 companies accounted for a surprisingly high 53% of the total deal value under new IFRS accounting rules, new research shows.

 

This amounts to £21bn, says a report by brand valuation consultancy Intangible Business.

 

The firm looked at how the FTSE 100 accounted for £40bn of acquisitions in the first year of reporting under IFRS, during which time 88 companies used the standard and made acquisitions. The purpose of IFRS 3, Business Combinations, was to improve the transparency of how companies reported mergers and acquisitions.

 

But by lumping all goodwill together and not breaking it down into components parts such as brands etc, transparency is lost. Companies were required to comply with IFRS 3 from their first reporting date as of 31 December 2005.

 

Intangible Business's report, IFRS 3: The First Year, reveals the extent to which the standard is being ignored by some of the UK's largest companies.

 

The key findings are:

 

• £21bn is allocated to goodwill, a figure that is too high and unexplained;
• £12bn is allocated to intangibles, a figure that is too low and insufficiently described;

 

• £80m is estimated to be wasted in compliance costs.

 

Intangible Business joint managing director Thayne Forbes said: 'The FTSE 100 spent £40bn of shareholders' money on acquisitions last year and failed to explain what over half of this expenditure was for.'

 

He added: 'IFRS 3 was designed to demonstrate to investors how their money was being spent on acquisitions. Our research clearly lays bare the fact that the UK's major companies, from banks to retailers and insurance companies to TV networks are systematically failing to comply with IFRS 3.'