The brand valuation firm Intangible Business has produced two studies on reporting of intangibles under US and international accounting rules. Those rules (SFAS 141/142 and IFRS 3) require companies to break out the value of acquired intangible assets from the overall category of "goodwill." The US report (SFAS 141: The First 5 Years) concluded that goodwill is substantially over reported and intangible assets under reported. Some examples:
Disney
Bought PIXAR for $7.5bn and allocated only 3% to intangible assets. 75% was goodwill.Conoco Phillips
Bought Burlington Resources for $35bn allocating just $0.1bn to intangibles, 0%.Chevron
Bought Unocal for $20bn and determined that intangible assets had no value at all.
Bought YouTube for $1.2bn and allocated $0.2bn to intangibles and $1.1bn to goodwill, 92%.JPMorgan
Bought Bank One for $95bn. Only 9% was allocated to intangibles but 36% to goodwill.Wachovia
Bought Golden West for $75bn with intangibles like customers, brands, contracts valued at 1%.
On the international side, the results appear to be somewhat better (Goodwill Reporting Internationally):
IFRS3 disclosure requirement on the components of goodwill is just about adequate for stakeholders’ needs. USGAAP is still some way short of even this level of disclosure and, most disturbingly, compliance frequently consists of “going through the motions” and sometimes doesn’t happen at all.
Auditors seem unwilling to make an issue of this, and perhaps this is because compliance still results in such woolly, ‘motherhood and apple pie’ type statements. The attitude seems to be that if disclosure requirements are considered to be bland and uninformative, it doesn’t matter if they are overlooked altogether. The absence of any effective monitoring of compliance with IFRS by reporting companies and their auditors, along the lines of the SEC in the United States, means that the quality of disclosure is likely to remain poor.
Not a good result. Maybe SEC needs to do its own analysis of the impact of the 141/142.
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