WPP ‘Comfortable’ Over Its Accounting Methods

22 July 2002

WPP Group, the London-headquartered global advertising and marketing conglomerate, this weekend angrily refuted allegations that its creativity was reflected as much in its accounting practices as the ads it produces for clients like Ford Motor Company and American Express.

In a statement issued Sunday, the agency giant denied a spate of weekend reports that it had inflated bottom-line profits via the currently fashionable device of overly benign amortization of goodwill.

Fumed the statement: “WPP strongly refutes the suggestion that it ‘bends the rules’ on accounting for goodwill. WPP's policy is exactly the same as that adopted by most of the UK's leading media and marketing services groups and it is designed to give a true and fair view.”

The group added that it felt “comfortable” with analysts' forecasts that it would amortise about £20 million ($31.50m; €31.17m) of goodwill from its balance sheet in its current year ending December 2002.

The statement spelled out WPP’s discrete accounting methodology for the amortization of goodwill, defining the latter as the difference between price paid for an acquired business and its true market value.

In the case of smaller purchases, goodwill is amortized over a number of years. But for larger acquisitions (of the ilk of Young & Rubicam), it treats goodwill on the interesting premise that it has an infinite economic life due to the brand’s strength and market share – the “carrying value” of which is reviewed annually.

WPP chief executive Sir Martin Sorrell was financial director of Saatchi & Saatchi in its early-80s glory days of ads featuring a pregnant man.

Data sourced from: Financial Times; additional content by WARC staff