The ESMA report released on Monday urges European companies to adopt more realism, rigour and transparency in assessing the economic climate and its impact on the future returns of expensively acquired assets.
The ESMA's finding that three-quarters of the goodwill impairments in 2011 were borne by the financial and telecoms sectors echoes similar data from investment bank Houlihan Lokey.
Putting a value on intangible assets such as synergies and cost efficiencies is difficult. Recognising impairments can be tough too: executives hate to write down valuations, especially if they were the people who bought the assets. As ESMA implies, a lot of pre-crisis purchases are looking bloated on corporate balance sheets. It is a consequence of the crisis that remains insufficiently addressed. If banks came clean on goodwill, for instance, they might enjoy an overdue stock market rerating.
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