Equity
Goodwill amortisation rules change, Matáv and OTP benefit
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The IASB issued on March 31 IFRS 3, and also revised two of its Standards that will apply to most listed companies all over the world, with the exception of U.S. firms.
The revised Standards will help eliminate differences between international accounting standards (IFRS) and those of the United States (GAAP). Of the numerous modifications the IASB introduced on standards of business combinations, goodwill and intangible assets, it is the altered goodwill amortisation regulations that require most attention.
The new goodwill rules will affect Hungary's telecoms group Matáv and leading bank OTP, but oil and gas group MOL and pharmaceutical firm Richter may also be affected in the long run. Under the new accounting rules Matávs P/E 05 ratio will drop by 20%.
According to earlier rules the amortisation of the value of goodwill within intangible assets has been carried out over period of usually 20 years in Hungary.
Normally, goodwill amortisation deteriorates the earnings of companies but leaves their cash flow intact. The change of goodwill amortisation regulations may trigger the question at most Hungarian companies: shall we tax more or not? As the tax payment of Hungarian companies is based on Hungarian Accounting Standards (HAS) and the new rules apply to balances made in line with International Accounting Standards (IAS), the answer is no - tax burdens will not grow.
We believe the changes will also affect pricing. As the modifications are expected to boost EPS, the P/E - an index most widely used by investors - is also likely to show positive changes, while other indicators are likely to remain intact.
Let's see what impact will these changes have on listed companies, such as Mol, Matáv, OPT that were rather active acquisition wise in the past few years.
The revised Standards will help eliminate differences between international accounting standards (IFRS) and those of the United States (GAAP). Of the numerous modifications the IASB introduced on standards of business combinations, goodwill and intangible assets, it is the altered goodwill amortisation regulations that require most attention.
The new goodwill rules will affect Hungary's telecoms group Matáv and leading bank OTP, but oil and gas group MOL and pharmaceutical firm Richter may also be affected in the long run. Under the new accounting rules Matávs P/E 05 ratio will drop by 20%.
Changes in IFRS.
Amortisation of goodwill and intangible assets with indefinite useful lives is prohibited. Instead they must be tested for impairment annually, or more frequently if events or changes in circumstances indicate a possible impairment", said IFRS on its homepage. According to earlier rules the amortisation of the value of goodwill within intangible assets has been carried out over period of usually 20 years in Hungary.
Normally, goodwill amortisation deteriorates the earnings of companies but leaves their cash flow intact. The change of goodwill amortisation regulations may trigger the question at most Hungarian companies: shall we tax more or not? As the tax payment of Hungarian companies is based on Hungarian Accounting Standards (HAS) and the new rules apply to balances made in line with International Accounting Standards (IAS), the answer is no - tax burdens will not grow.
We believe the changes will also affect pricing. As the modifications are expected to boost EPS, the P/E - an index most widely used by investors - is also likely to show positive changes, while other indicators are likely to remain intact.
Let's see what impact will these changes have on listed companies, such as Mol, Matáv, OPT that were rather active acquisition wise in the past few years.
