Sharechat Logo

Standard for brands shot down in flames

By Mike Ross

Friday 16th June 2000

Text too small?
SEEING RED: The accounting standard would have had a big effect on Lion Breweries' gearing ratios and asset backing per share
It's back to the drawing board for an accounting standard on intangible assets after draft proposals which would bar internally generated brands from the balance sheet attracted considerable opposition.

Opponents want to see a home-grown accounting standard for intangibles which departs from current overseas practice.

Nearly 40 submissions were received by the Chartered Accountants Institute on ED-87, Accounting for Intangible Assets - a staggering number of submissions for something as mundane as a proposed new accounting standard.

The commercial significance of the proposed standard is apparent when companies like Lion Breweries have over half its balance sheet assets recorded as intangible assets in the form of brands.

Removing these assets from the balance sheet would have a substantial effect on gearing ratios and asset backing per share.

There is no current accounting standard in New Zealand dealing with intangible assets such as brands, copyrights and client lists.

ED-87, which allows acquired intangible assets, but not internally generated intangibles to go on balance sheet, is a copy of current overseas accounting standards.

When ED-87 was released for public submissions last year, the Chartered Accountants Institute expected there would be some hostility.

Liz Hickey, chairwoman of the Institute's financial reporting standards board, said two major issues surfaced. One was the recognition and revaluation of intangible assets. The other was amortisation: the period over which intangible assets have to be written off.

Those calling for balance sheet recognition of internally generated brands argue this complies with the statement of concepts.

Operating as a guide to fundamental principles, the statement of concepts defines asset and liability in economic terms.

Opponents of the current ED-87 say the statement of concepts requires balance sheet recognition of assets when there is "a cost or other value that can be measured with reliability."

Specialist valuers can provide reliable valuations for internally generated brands, they say.

Ms Hickey said what would be critical was determining whether intangible assets can be reliably valued when there is no active market for the asset.

She said this issue would be studied by a working group before any more progress was made on a new accounting standard.

It would also study the question of amortisation.

ED-87 requires intangible assets to be written off over a period of not more than 20 years.

Some submissions argued that many brands and trademarks were not subject to wear and tear and theoretically never wore out.

  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comment:
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

MARKET CLOSE: Blue-chip stocks Meridian, A2 lead market lower
NZ dollar rises on Brexit hopes, rate cut reassessment
Three not failing, just needs a new owner - MediaWorks CEO
Major investors back new CBL class action targeting directors
Rip Curl purchase a done deal on Kathmandu proxies alone
Comvita chair Neil Craig eyes the exit once he finds a new CEO
Mercury raises guidance on increased storage, high spot prices
Eroad reports strong 3Q sales growth, eyes ASX listing
MediaWorks puts TV business on the block
NZ dollar benefits as preliminary Brexit deal improves risk appetite

IRG See IRG research reports