According to The Guardian, one of Britain's most respected broadsheet dailies, WPP Group’s 2002 results revealed earlier this week [WAMN: 25-Feb-03] would have reflected a loss had it adopted more conservative accounting practices.
The newspaper points out that despite WPP’s recession-battered share price, its balance sheet remains remarkably robust – due mainly to Sir Martin Sorrell’s reluctance to write-down the value of assets acquired in the millennial goldrush frenzy.
The Guardian cites Britain’s accountancy guidelines: Company balance sheets should reflect the depreciation over a period of twenty years of “goodwill” in businesses which have been bought. [Goodwill is the difference between the price paid for a company and its current value.]
This guideline is also a generally accepted international standard, adherence to which has hammered the balance sheets of groups like AOL Time Warner.
As the newspaper points out, WPP chose not to take such charges in respect of its two largest acquisitions in recent years – Young & Rubicam, which it bought for £3 billion in 2000, and media buying group Tempus which it grudgingly acquired for £432 million the following year. Between them, the two purchases account for 75% (£3.3bn) of the £4.4bn in goodwill on WPP’s current balance sheet.
Had that £4.4bn been amortised over twenty years as the guidelines recommend, it would have lopped at least £220m from WPP's latest results and eliminated its retained profit of £25m.
But Sir Martin, an accountant by training, holds the unusual view that advertising agencies enjoy economic immortality – an opinion unshared by the rest of the sector, The Guardian says. The latest results from Cordiant Communications, for example, reflect goodwill charges of over £350m.
As William Shakespeare observed: “There is divinity in odd numbers, either in nativity, chance or death.” He did not explain the context in which he used the word “odd”.
Data sourced from: MediaGuardian.co.uk; additional content by WARC staff