The Urgent Issues Task Force (UITF) has issued Information Sheet 35 to clarify the accounting treatment of various items:
Takeover costs
The UITF considered whether takeover costs could be capitalised as goodwill, as part of the cost of an acquisition. Such takeover costs include arrangement fees for bridging finance facilities, participation fees, and researching alternative financing arrangements for a takeover.
The UITF considers that these questions are already fully addressed in FRS 7 para 28 and FRS 4 para 10, and so will not be issuing an abstract. Incidental financing costs that do not come within the scope of FRS 4 are not incremental costs incurred directly in making the acquisition. Therefore they should not be included as part of the acquisition cost, but be written off immediately.
FRS 12 and regulated industries
UITF was asked to consider how FRS 12 on provisions and contingencies related to regulated industries in which the results of one year could affect the pricing structure of the next.
FRS 12 Appendix VII para 16 already states that no such provision should generally be made. To do so would be to transfer profit of one year into the next when there is no underlying transfer of economic benefit to justify such a profit transfer.
UITF confirms that this principle applies to regulated industries. However a company may make a provision where it has a binding obligation to repay amounts to customers at the date of the balance sheet.
New agenda items
UITF confirms that it has added two topics to its agenda.
On start-up costs, it has initially concluded that all such costs should be recognised as an expense when incurred.
On national insurance contributions on share option gains, UITF concludes that the liability for national insurance payable by a company in respect of profits made by employees on unapproved share option schemes should be based on the market value of shares at each balance sheet date.
UITF will also be researching computer software, and contributions of businesses to set up a joint venture.
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