Cost of change in brands rule 'many millions'

WELLINGTON - Huge sums of dollars could be wiped off companies' balance sheets if a proposed draft accounting standard comes into effect.

Andrew Collins, managing partner of intellectual property agents A. J. Park & Son, said the exposure draft, ED-87, in its present form would not allow internally generated brands to be recorded on the balance sheet as intangible assets after 20 years.

For a company such as Lion Nathan, that would mean it would have to write down the value of its assets by up to $2.3 billion over that time.

"There are many examples of companies that sell their products or services at a price or volume advantage to their competitors, largely due to the strength of their brand," said Mr Collins.

"To say that a strong brand does not have a place on the balance sheet as an intangible asset is hard to comprehend."

Randall Burt, finance director of Independent Newspapers which values its newspaper mastheads in its balance sheet at $663 million, said the proposed draft standard was vexing.

"It would make our balance sheet a very different indication of value than reality. How else is the average shareholder able to judge where value is in a company?"

He said INL's net assets were valued at $7.28 a share at June 30, but would be written down to $2 or $3 a share if INL was forced to comply with the standard in its proposed form. INL's current share price is 815c.

The corporate affairs spokesman for Lion Nathan, Warwick Bryan, agreed.

"Our view is that for companies like ours, the intangible assets are a significant part of the business.

"In fact, they are probably the most valuable asset."

But it would not affect Lion's cash flows or financial position.

"It is a perception issue in that the accounts would suggest that your gearing is significantly higher. The reality is that it doesn't make any difference to your ability to service your debt or your cash flow."

However, Liz Hickey, chairwoman of the financial reporting standards board of the Institute of Chartered Accountants, said the exposure draft was an almost exact copy of the International Standard on Intangible Assets (No 38).

"Clearly there are many people who are opposed to us having a standard like this," she said.

Their views would be taken into account when submissions were received. These would be considered by the financial reporting standards board, she said.

The United States did not have a standard for intangible assets but US companies did not generally value their brands in the balance sheet.

Ms Hickey said it should be remembered that financial reporting was based on costs, not necessarily on values.

"This standard does reflect a cost way of looking at things rather than the value. Financial statements don't propose ever to reflect the value of the company. They reflect a true and fair view, not value, of the company on an historical cost basis," she said.

Brands could legitimately be put on the balance sheet when companies were bought. But she said brands had a limited shelf life like other assets.

"Any asset that has a life needs to amortised or depreciated," she said.

"I'm sure there are beer brands that were famous in the 1950s that are no longer with us."

- NZPA