Reporting and Accounting for Intangibles and Intellectual Property
Representative recent clients include: Fisher Scientific, GE and Pramerica.
Broadly the implementation process can be summarised by five phases; identification and due-diligence, analysis of purchase price, testing of purchase price, determination of the type of acquired asset and determine their value.
The fair values of working and identified tangible and intangible assets are subtracted from the purchase price and the residual represents acquired goodwill value.
If fair values exceed the purchase price they are reduced on a pro-rata basis to the purchase price. In that case, no goodwill exists.
The standards can be vague and confusing.
We are continually evaluating practices and promulgations.
When we can we will provide clarity to the area of business combinations at our NewsDesk.
Greater convergence then but internally generated intangibles are yet again not treated with the respect they deserve. If you are unhappy about this the Operating Financial Review document, compulsory soon for all UK listed companies, will, for all IPR, be the place to be seen.
The smartest companies, including unquoted or quoted will as usual accompany the annual report with a supplement with intangibles information and valuation. In surveys it has been shown that those who report in this way are more likely to receive upbeat views from analysts.
Conceptually there is no difference to a creditor or shareholder whether IPR was purchased or developed in house. In either case they have value because they generate future cashflows. Why should accounting treatment differ.