Accounting - The difference is in the detail.

(From Financial Director)

Byline: Peter Williams.

March's issue of Financial Director contained an analysis of the AOL/Time Warner merger. The write-offs were huge and partly related to the timing of the deal. From the date the acquisition was announced, AOL recognised Time Warner as a subsidiary, even though it didn't formally own the shares. The announcement was the key: as a result of the sliding stock market, including Time Warner stock, the Time Warner investment needed a massive write down contributing to record-breaking losses of $100bn.

If the acquisition had happened in the UK, those losses would not have been nearly as big for the simple reason that a British AOL would not have been allowed to take account of the shares it wanted to own until it actually owned them. If it's a public offering, the date control transferred is the date the offer becomes unconditional, usually as a result of a sufficient number of acceptances being received.

But the British view is out of step with international thinking. The international standard - based on the US standard - notes that it is not necessary for a transaction to be finalised at law before control may effectively pass to the acquirer. It doesn't really matter whether you think the British or US international reasoning on acquisitions is right. The point is that if accounting standards are to be harmonised across the globe, then it is that sort of principle that needs to be sorted out. In many ways, it is a minor detail, but one which can lead to material differences in both the profit and loss account, and the balance sheet.

Hence, the valuation of the company.

In October last year, the US Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) issued a memorandum of understanding, formally stating their commitment to the convergence of US and international accounting standards. This had two practical effects: first, they promised to adopt compatible, high-quality solutions to existing and future accounting issues.