NEW ACCOUNTING standard FRS10, now being introduced, is likely to hit media and marketing companies where it hurts most – amidships on the bottom line! Currently, most companies in the sector write-off the entire cost of purchasing intangible assets against their reserves - conveniently keeping them out of the P&L spotlight. However, according to accountancy firm Willott Kingston Smith, FRS10 requires companies to treat intangible assets exactly as they would tangible assets such as buildings and capital equipment. The requirement, if applied fully, says WKS, will have a profound impact on the bottom line and could reduce the profits of quoted ad and PR agencies by an average of 43% per cent. A few companies in the sector, Abbott Mead Vickers BBDO and Reuters among them, already comply with FRS10 - and all companies without exception must do so for accounting periods ending after 23 December this year. According to WKS, the application of FRS10 in its entirety would impact dramatically on the latest profit figures of many leading agencies: WPP would see profits plummet by £64m (36%), media buying group Aegis by 62% and Holmes & Marchant by a swingeing 94%. Believe it or not, that’s the good news - the bad is that FRS10 also requires companies to restate previous write-offs against the new standard, wherever practical.
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