View from City Road: ASB stands firm in wonderland

The massed ranks of corporate Britain may be lined up against him, but David Tweedie, chairman of the Accounting Standards Board, is sticking to his guns. Today he will move one step closer to clamping down on acquisition accounting, one of the last remaining areas where creative accountants still have a free rein.

Analysis of comments on his April discussion draft neatly illustrates the drawbacks of the current lax system. Directors of companies are only too grateful for a system that allows them to ensure that any acquisition, no matter how bad, will look wonderful in their accounts. And they are almost universally opposed to the ASB's proposal to ban them from providing for future losses, redundancies, closure costs - and virtually anything else you care to mention - before taking the company they are acquiring into their own books.

Investors, analysts and other users of accounts, on the other hand, are almost universally in favour. They are sick of trawling through the small print of the accounts to try to piece together exactly how costs and losses have been charged against pre-acquisition provisions, thus keeping them safely out of the way of the profit and loss account.

The practice is widespread - and not just among acquisitive companies like Hanson, which used pounds 530m of its pounds 5bn-plus store of provisions in arriving at its pounds 1bn pre-tax profit last year. Businesses as varied as Triplex Lloyd, Whitbread, Coats Viyella and Redland have taken full advantage of the chance to account for tomorrow's costs yesterday.

Today's exposure draft is unlikely to become a mandatory standard until next autumn, and the complaints from companies are likely to increase in volume as that date approaches. Before they complain, however, they should examine their consciences. Acquisitions should make economic sense regardless of accounting treatment; if companies fear tighter rules will make deals less attractive, they should be re-examining the logic of those deals.