Do you need to blow the whistle ?

If a company has accounted for something which you feel is not in the spirit of the true and fair view or is bending the rules a little too far, please let us know.

Whistle-blowers' Corner will look into any cases that you report to us. All we ask is that you provide us with a brief description of the practice, the name of the company or a copy of their accounts and we will do the rest. Although we can provide no guarantees, if you can provide a big enough breach, we will run the story.

Please e-mail, phone or fax to contact the Whistle-blower ... or send a brown paper envelope to:

Company Reporting Ltd.
11 John's Place
Edinburgh
Scotland
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EH6 7EL

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Fax: +44 (0)131-561 8001

Liberty International plc

28^th March 2002

Liberty found itself in trouble with the FRRP for its goodwill policy such that no negative goodwill was recognised on an acquisition. However, its was the action that followed that we found most interesting. To avoid the negative goodwill, and with the Panel's blessing, Liberty has written the negative goodwill straight to reserves invoking the true and fair override to by-pass FRS 10.

The case originates from a prior year acquisition made by Liberty. At the time, in its 2000 year end accounts, Liberty accounted for the acquisition of the remaining 25% share in Capital Shopping Centres (CSC) as follows:

Liberty acquired investment properties with a book value of £807 million
A fair value adjustment reduced this amount to £614 million
Liberty stated that this was done to match the consideration given; there had been no "bargain purchase"

However, the FRRP did not agree with this. The resultant discussions led to a restatement in Liberty's 2001 year end accounts in order to comply with FRS 2 "Accounting for subsidiary undertakings". FRS 2 requires that a fair value revaluation be made on the additional assets and liabilities acquired when the investment in a subsidiary is increased (para 51). The restatement shows no fair value adjustment, instead £193 million negative goodwill is recognised.

Case closed ? Not quite. In a further twist to the CSC saga, Liberty has taken this negative goodwill straight to reserves, ignoring completely FRS 10 "Goodwill and intangible assets". FRS 10 requires negative goodwill arising on an acquisition to be capitalised as a negative asset on the balance sheet. We draw your attention to the case of Artisan (UK), which took purchased goodwill to the merger reserve, only to restate it as an asset after discussions with the FRRP.

Liberty's negative goodwill relates to investment properties which, under SSAP 19 "Accounting for investment properties", are not depreciated. This, potentially, would result in the negative goodwill having a perpetual life. Liberty therefore argues that it is sensible to invoke the true and fair override and take the amount to reserves. Our concern is that Liberty was given prior approval by the FRRP to do this.

On a point of procedure, Company Reporting is uncomfortable with the FRRP expressing a view prospectively on a company's proposed treatment and then publishing a justification for the adoption of that treatment. The remit of the FRRP is to review, solely ex post, a company's accounts; a dangerous precedent may have been set.