Accounting rules spread confusion

Posted on / Companies / Financial Services - Accounting rules over M&A spread confusion.

The FT notes:

Accounting for mergers and acquisitions is failing investors because companies do not understand new reporting requirements and the rules themselves need improvement, according to a study from the Financial Reporting Council.

Ian Wright, director of corporate reporting at the FRC, said a reason the rules had been poorly applied by companies could be due to their lack of understanding and the complexity of valuing intangible assets. The International Accounting Standards Board introduced the new rules in 2005, but they were revised for reporting periods from July 1 2009.

So that's one mess.

And I also note IFRS 8 - on segment reporting (which I would wish to be supplemented b y the logic al and readily understandable country-by-country reporting) is in trouble. It's reported:

Challenges associated with the implementation of new segmentation reporting requirements have been highlighted by the Financial Reporting Review Panel.

Inconsistencies of firms in the UK when reporting about key areas of their companies have been singled out as a cause for concern by the panel.

The IFRS 8 'Operating Segments' accounting rule states that managers must make information used to make internal decisions known.

However, the review panel is worried that some companies may not be following the rule and keeping certain information concealed.

This was exactly as predicated when IFRS 8 was first proposed.

It's esoteric to the point of absurd: the accounting policies applied in IFRS 8 reports do not even need to be consistent with those used in the rest of the accounts and they need not reconcile.

Country-by-country reporting on the other hand is logical, consistent and has to agree with the rest of the accounts.

It's obvious which makes more sense.

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