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London - The European Union's markets watchdog has told companies and their accountants they will be named publicly if they fail to write down goodwill impairments properly in their latest results.
The intervention comes as companies finalise results for 2012 and refers to the value put on a company's intangible assets such as reputation, brand or intellectual property and is reflected as a premium over the value of net assets in a takeover price.
Under accounting rules introduced seven years ago the EU listed companies must assess at least annually whether there has been an impairment to goodwill because of factors such as poor performance or a deteriorating economy instead of regularly amortising goodwill.
The European Securities and Markets Authority (ESMA) said it sampled 235 companies from 23 EU member states and found that just 5% or €40bn of goodwill has been recognised as impaired from a total of €800bn of goodwill standing on their balance sheets.
Most of the impairment was also limited to relatively few companies in the financial services and telecoms sectors.
"This therefore raises the question as to whether the level of impairment disclosed in 2011 financial reports appropriately reflects the difficult economic operating environment for companies," ESMA said in a statement.
"Although the major disclosures related to goodwill impairment testing were generally provided, in many cases these were of the boilerplate variety and not entity-specific," it added.
ESMA said it will now review annual reports for last year to see if companies and their auditors have been more rigorous in applying an "impairment test" to goodwill.
The findings will be published to the market.
"In addition national competent authorities will take or have already taken appropriate enforcement action whenever material mis-statements are identified," ESMA said.
Anglo-Australian miner Rio Tinto last week revealed a $14bn writedown almost entirely on the value of two big aluminium and coalmining acquisitions made in the last five years.
