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Reflecting the desires of management

Article Abstract:

US SEC Chmn Arthur Levitt has noted that corporate financial reports are at risk of being used to reflect the wishes of management instead of providing relevant information on the company's underlying financial performance. One accounting abuse he has identified is the reduction of the futures earnings drag resulting from the goodwill amortization charge. This approach entails characterizing a portion of the acquisition cost as 'in-process research and development,' which effectively reduces the goodwill stemming from the transaction. One company guilty of this accounting abuse is Roche, which was able to bolster its operating profit in 1998 by classifying nearly 30% of the price it paid for the Corange group as in-process R&D and writing it off as a one-off charge. The International Accounting Standards Committee has provisions for dealing with this and other accounting abuses.

Accounting Methods, Pharmaceutical Preparation Manufacturing, Pharmaceutical preparations, Methods, Pharmaceutical industry, Drugs, Accounting, Hoffmann-La Roche AG

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A toast to competition

Article Abstract:

Heineken NV holds the distinction of being the world's second largest beermaking company. With over 110 breweries in more than 50 countries, it declared net profits of 981 million Dutch guilders in 1998, up 29% over 1997. A geographical breakdown of its sales shows that strong growth occurred in the US and Europe, although sharp declines were observed in Africa and the Asia-Pacific. A multi-year analysis of Heineken's annual reports shows that net profit, when expressed as a percentage of shareholder's equity, rose from 14% in 1995 to over 19% in 1998. This seemingly impressive achievement, however, becomes less striking when the effects of goodwill are taken into account. Under Dutch law, goodwill can be offset against shareholders' equity, a practice that is not permitted in either the US or the UK.

Breweries, Malt beverages, Beer & Ale, Brewing industry, Corporation reports, Company reports, Heineken N.V., Goodwill (Business)

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