EU companies are under pressure to come clean about overpriced acquisitions, after regulators found that losses taken on past deals were suspiciously low. According to the release of 2012 results by many companies, ESMA questioned why weak economic conditions had not caused heavier writedowns.
Steven Maijoor, chairman of ESMA, said he feared that listed companies were taking an excessively optimistic view of the value of takeovers agreed in more buoyant times. “Issuers tend to be slow in recognising losses”, he said. “Economic circumstances have changed fundamentally in the past years and that needs to be reflected.”
At listed EU companies, it must undergo an “impairment test” once a year to see if its value has decreased. Deteriorating economic conditions can trigger writedowns by reducing the cash flows that assets are expected to generate.
ESMA also said some companies had been using overly bullish predictions for their longer-term growth when carrying out goodwill impairment tests. ESMA found that disclosure in this area was often of a formulaic nature and did not contain enough information specific to the company.
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