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ICI » Topics » (b) Purchase accounting adjustments, including the amortisation and impairment of goodwill and intangibles

This excerpt taken from the ICI 6-K filed Mar 21, 2007.
(b) Purchase accounting adjustments, including the amortisation and impairment of goodwill and intangibles
The accounting policy for goodwill is similar between IFRS and US GAAP, with goodwill arising on acquisitions capitalised and reviewed for impairment annually and whenever indicators of impairment arise. The methodology for testing impairment differs between IFRS and US GAAP. However, due to the historic differences in accounting between UK GAAP and US GAAP for goodwill and other intangibles, relating mainly to amounts capitalised and amounts amortised, the Group has recognised significantly more goodwill on the balance sheet under US GAAP compared to IFRS. As a result, disposals of goodwill, any impairments and exchange on retranslation of goodwill may vary between IFRS and US GAAP.

The historic differences in accounting between UK GAAP and US GAAP for goodwill and other intangibles relate to:-

  (i) Goodwill and intangible assets that arose as a result of acquisitions prior to 1 January 1998. Under UK GAAP, goodwill arising on acquisitions prior to 1 January 1998 was charged against retained earnings. Values were generally not placed on intangible assets. Under US GAAP, prior to the adoption of SFAS No.142 Goodwill and other Intangible Assets on 1 January 2002, all goodwill was capitalised and amortised through charges against income over its estimated life not exceeding 40 years. In addition, fair values were ascribed to identifiable intangibles. The acquisition in 1997 of the Unilever Speciality Chemicals business for a consideration of £4.2bn resulted in significant differences between UK and US GAAP for the carrying amounts of goodwill and intangibles.
     
  (ii) Differences in amortisation applied under UK GAAP and US GAAP from 1 January 1998 to 31 December 2001 on goodwill and intangibles arising from acquisitions from 1 January 1998 and 31 December 2001. Under UK GAAP, goodwill was capitalised and amortised over a period of 20 years, as opposed to the 40 years in the period indicated above for US GAAP.
     
  (iii) Amortisation charged under UK GAAP but not under US GAAP in the period from 1 January 2002 to 31 December 2003 (transition date of IFRS). Under US GAAP from 1 January 2002 under SFAS No. 142, goodwill was no longer amortised but tested for impairment annually.

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