Global accounting body wants to force companies to spell out takeover motives

LONDON (Reuters) - A global accounting standard setter said it wants to force companies to spell out their thinking behind acquisitions to break new ground in making boards more answerable to shareholders.

The International Accounting Standards Board (IASB) set out on Thursday possible rule changes after investors said they wanted more information on whether takeovers live up to expectations, which is not always the case.

“This is very much blue sky thinking,” said Sue Lloyd, vice chair of the IASB, which sets accounting rules that are mandatory in over 140 countries, including the European Union and Britain, but not the United States, which has its own standards.

It would be a first in terms of accounting standards, she said.

Under existing IASB rules, acquisitions are accounted for under an annual test to see if goodwill needs writing down, a reference to the value of intangible assets acquired when buying another company.

Investors have mixed views on whether this is a useful test of how an acquisition is performing, Lloyd said.

The IASB concluded against amending the goodwill standard, such as by reintroducing amortization or gradually writing down goodwill over time, she said.

Instead, it will supplement the existing goodwill standard with a new rule requiring disclosures on the performance of an acquisition in annual reports.

“The focus of this discussion paper is very much on a set of disclosures to help investors really understand acquisitions and whether they have gone well or not,” Lloyd said.

Companies would monitor a takeover and its performance for two years or explain to investors why they were not doing so.

To reduce the reporting burden, companies could “piggy back” on information management used for making an acquisition in the first place, she said.

Depending on feedback from a public consultation that lasts until September, more specific proposals would come later.

The aim is to shine a light on whether companies are increasing value to shareholders by making acquisitions at the price paid, and whether the touted benefits of the deal live up to expectations, Lloyd said.

“At the moment we don’t have a set of disclosures that provide that set of information,” she said.

Reporting by Huw Jones; editing by David Evans