RSM Bird Cameron predicts ASIC will focus on intangible assets in 2011
January 28, 2011 - RSM Bird Cameron has released its latest Business Acquisition and Impairment Review, which predicts the Australian Securities and Investments Commission’s (ASIC) recognition of intangible assets in a business combination will become a major focus in 2011.
Corporate Finance Director for RSM Bird Cameron, Glyn Yates, said, “As separately identifiable intangible assets are required to be recognised and amortised over their economic useful lives, the accounting treatment of business combinations can have a significant impact on the post acquisition profits of an acquiring entity.
“This can pose a complex challenge for an acquiring company requiring the identification, recognition and measurement of intangible assets previously not recognised in the target’s balance sheet.”
Along with key predictions for 2011, the review offers detailed analysis of acquisition trends in 2009 and 2010 financial years, deal structures, intangibles, purchase price and impairment write-offs.
“Australia’s economy appears to have weathered the worst of the global financial crisis. Through the Business Acquisition and Impairment Review, we have been able to assess whether this has translated into a return to merger and acquisition (M&A) activity and how this activity is now being structured,” said Glyn Yates.
Other key predictions for 2011 include:
* rising number and frequency of acquisitions compared to the 2010 financial year
* transactions will continue to take longer to complete due to the combined impact of credit availability and purchaser scrutiny of the risks associated with a business combination
* continued growth in the volume of smaller transactions as prices continue to recover and ‘baby boomer’ vendors, who have refrained from selling, are tempted to put their businesses on the market
* increasing number of separately identifiable intangible assets recognised in the financial statements of acquirers following the adoption of AASB 3 – Business Combinations (Revised). This will have a flow on effect of increasing amortisation charges and reducing earnings of acquiring companies in the short term
* impairment charges will be reversed on a number of separately identified intangible assets (excluding goodwill) as a general uplift in economic conditions assists companies to justify the carrying value of assets acquired as a result of business combinations.
2009 and 2010 financial year acquisition key findings include:
* significant increase in the number of transactions undertaken by all classes of ASX listed entities in 2010 financial year
* median transaction size for all classes of ASX listed companies over the whole financial year reduced, compared to the 2009 financial year, with the market focused on making smaller key strategic acquisitions and not tying up large amounts of capital in single acquisitions
* median consideration paid by all classes of ASX listed entities in the second half of the 2010 financial year was higher than in the first half, reflective of an increase in business confidence and transaction numbers during the second half of the financial year, as the economy recovered from the global financial crisis
* average consideration paid as a percentage of market capitalisation reduced for all classes of listed companies, reflective of some continued economic uncertainty and limited access to debt and equity capital
* average consideration paid as a percentage of market capitalisation considerably higher for non-ASX 300 companies, which means the financial risk and impact of an underperforming acquisition is generally more pronounced for smaller companies.
About the RSM Bird Cameron Business Acquisition and Impairment Review
The Business Acquisition and Impairment Review is RSM Bird Cameron’s second annual review analysing the financial statements of a diverse cross-section of 150 Australian listed companies to assess the financial reporting impact of acquisitions made by these companies during the 2009 and 2010 financial years. The analysis is segmented into ASX 300 and non ASX 300 entities allowing insight into the different acquisition strategies of large, medium and small companies.
The review also analyses the impact the introduction of AASB 3 Business Combinations (revised) has had on the financial statements of acquiring companies.
About RSM Bird Cameron
RSM Bird Cameron is the largest national mid-tier accounting firm in Australia and offer a full range of specialist advisory services, including business consulting and advisory, assurance and advisory, taxation consulting, corporate consulting and turnaround and insolvency. RSM Bird Cameron is a core member firm of RSM International, the sixth largest network of independent accounting and consulting firms in the world.