Postbox - Goodwill crisis needs averting.

(From Post Magazine)

Last week, Post highlighted KPMG's report regarding the ending of concessions for the treatment of goodwill in calculating solvency margins (Post, 22 February, p3). The clock is indeed ticking and we are now 10 months away from an impossible situation.

Many brokers have goodwill on their balance sheets, not only because of acquisitions but also arising out of MBOs, MBIs or changing status to become a limited company. These have to ensure that goodwill is covered by tangible assets. The current soft market has not helped as brokers are having difficulty building up reserves.

Coincidentally, while reading the piece, I received a copy of the annual accounts of a publicly quoted broker. This is a very well run consolidator and has a high investor rating. However, goodwill on its consolidated balance sheet is GBP19m. If this is ignored it has negative equity of GBP3m and in Financial Services Authority terms is broke.

This is absurd. The FSA regulates quoted companies and quite accepts goodwill as an asset in that area. The Inland Revenue accepts goodwill as an asset as they allow businesses to depreciate it and obtain tax relief, and accountancy standards recognise it and have robust rules for treatment. So why on earth doesn't the FSA recognise it in the same way?

Towergate acquisitions director Kenny Maciver highlights that large companies who can afford complicated structures and hefty ...