FSA goodwill gestures
Q: What has the Financial Services Authority decided to do about goodwill?
Goodwill has always been a thorny issue in accounting. Now, with the Financial Services Authority's involvement in broker regulation, goodwill has taken centre stage in the minimum capital resources calculation.
Originally, the FSA's view was that goodwill should be excluded from the capital resources calculation because it is hard to value.
However, in September, the FSA published its policy statement and near-final rules, in which it deferred the deduction of goodwill from the capital resources calculation until January 2008.
Although short-term goodwill is allowed in the calculation, it does not mean the FSA has changed its view. It is merely giving the broking industry time to build up its tangible assets so it can meet the minimum capital resource requirement.
You do not need to remove goodwill from accounts. Directors need to consider the remaining useful life of the asset and any impairment to its value and account for it accordingly.
Financial statements will still carry as an asset the unamortised element of the company's goodwill.
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