Even after his death on Jan. 21 of this year, Roger Sinclair, inaugural fellow of the Marketing Accountability Standards Board, remained a tireless critic of accounting rules governing the valuation of acquired brands.
His final article on the topic (Proposed Mega-Deal Underscores Flawed Accounting Rule) touched off a flurry of response on both sides of the issue.
Current accounting rules require companies to calculate the value of acquired intangible assets at the time of their purchase; to record that value on their balance sheet; and to test it annually for impairment. However, companies are not allowed to show in their accounting any gain in an acquired brand’s value, creating what Sinclair called “The Moribund Effect.”
One reader pointed out that brands that a company created are not valued on the balance sheet at all, while all expenses for marketing brands are recorded as a cost on the income statement. “Acquired brands [also] have been paid for, either in cash or with shares, so it is normal to evaluate them [at the time of their purchase],” he wrote.
But another audience member scoffed.
The aforementioned MASB (Marketing Accountability Standards Board) has already been tackling this problem, pointed out one reader.
One commenter pointed out how difficult it would be to change the rules, and quibbled with the idea that intangible assets represent 80% of the value of the S&P 500.
Another reader criticized Sinclair’s premise, but also had a practical suggestion.
Finally, one reader affirmed that indeed the MD&A approach could be the best way to go forward.
Have a different viewpoint CFOs should consider? Share your thoughts in the comments section of this story.