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US organisation investigating a vulgar practice

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The all too common practice amongst IT companies of boosting profits by overstating the value of research acquired in takeovers is exercising the US Securities and Exchange Commission, and it has asked an auditor group to come up with new guidelines. The SEC said the practice is becoming more commonplace as mergers and acquisitions pick up speed in the technology sector particularly, and the SEC suspects that many companies are abusing the practice. It has been in talks with a number of high-fliers about their accounting practices, not least Cisco Systems, Worldcom and America Online. A special panel at the American Institute of Certified Public Accountants has been requested to develop new guidelines for accounting for acquired research, but proponents warn that general guidelines could limit companies’ freedom of action. (R)

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