It's now 12 months since the Accounting Standards Board issued a discussion document on the thorny question of 'goodwill'. Since then the project, which started out with a split among the ASB's own members, has made little headway. Eight months after the official consultation period ended, the hoped-for autumn publication of detailed proposals has not materialised. There is merely vague talk of an exposure draft some time next year.
Among the stumbling blocks, inevitably, are brands. Ever since the late 1980s, when some companies started putting brands on their balance sheets, accountants and finance directors have been arguing the pros and cons of the issue. There is still, says Nick Bertolotti, a brand valuation practitioner at Arthur Andersen, 'such a variety of views that whatever the ASB decides, they will inevitably alienate a majority'. The ASB discussion document suggests three possible ways of treating goodwill, but none of these allows for separate recognition of brand values.
Proponents of 'brands on the balance sheet' point out that, in the modern world, a company's brands are often its most important assets - far more important than the bricks and mortar, the values of which figure so prominently in the accounts. 'One cannot just ignore brands or service intangibles,' insists Chris Pearce, who is finance director of Rentokil as well as chairman of the 100 Group of finance directors' technical committee. 'They are things that have real value and they are traded between companies on a relatively regular basis. Companies pay hard cash for them and it is only sensible that they should be set up as an asset in the balance sheet.' Opponents maintain that it's impossible (or at least extremely dodgy) to allocate values to brands separately from the business that creates them. Besides, it's said, today's financial markets are quite sophisticated enough to assess the worth of a business without the assistance of a specious set of figures in the books. While it is sometimes possible to ascribe a value to a brand that has recently changed hands, the inclusion of 'home-grown' brands is especially risky, since there is no generally recognised method of valuation. And to show one category without the other - which is what the 100 Group wants - does not make a great deal of sense.
Unilever is a group which might be thought to have some familiarity with brand ownership, but chairman Sir Michael Perry is a conservative in this matter. Brands do not have a value, he argues. 'In the real world the values of brands are shifting and indeterminate. More fundamentally,' adds Perry, 'brands do not fit into conventional accounting frameworks, and it is a mistake to try to squeeze them in.' There's the rub. There are two conflicting notions of the function of the balance sheet. Is it a statement of worth? Or is worth a matter for the stock market, the balance sheet being merely a record of the capital structure of the business plus a brief, historical summation of all its transactions since the day it was founded? Managers tend to the first interpretation, but they need the approval of accountants. Accountants prefer the second, but they must satisfy their clients, the managers. Until that conundrum is resolved, progress could be slow.