In an Australian Financial Review article entitled ‘Foster’s: less goodwill, higher earnings’ (Hughes, 2005) it was reported that in 2005, when Australia adopted the accounting standards issued by the IASB (IFRS), there would be significant changes to the global brewer’s reported assets and reported liabilities. In particular, the new accounting standard on intangibles required that about

$1.3 billion in intangible assets would be written off to retained earnings. Further, as a result of the removal of some internally intangible assets, certain amortisation charges would fall, with the result that profits would rise by about $30 million relative to what would have been reported under the old accounting standard.

Adopting a PAT perspective, consider the following issues:

a If a new accounting standard impacts on profits, should this impact on the value of the organisation, and if so, why?

b Will the imposition of a particular accounting method have implications for the efficiency of the organisation? LO8.11