Introduction
While sipping my coffee in the morning cafeteria, I came across a topic that's been on my mind lately.
At a government meeting, it was discussed that the Japanese accounting system is"Goodwill amortization"There are apparently discussions underway to revise this policy, reportedly in order to increase M&A activity among startups.
If that's true, Japanese corporate strategies might change somewhat.
However, as I continued to follow the story, some points emerged that made me want to think about it more quietly.
background
"Goodwill" refers to the "invisible value" that arises when a company is acquired.
It's the difference that arises when you buy intangible assets that don't show up on the books, such as brand recognition, talent, and future profitability.
In Japanese accounting, this value is treated as an expense little by little each year.
On the other hand, under international standards, assets are generally not depreciated, and losses are only treated when their value decreases.
This difference has led to the debate about whether Japan is at a disadvantage when it comes to M&A.
Main theme
However, there seems to be some doubt as to whether eliminating goodwill amortization would actually increase M&A activity.
Based on research and practical experience, the reason why startups don't actively pursue M&A cannot be explained solely by accounting practices.
Some argue that other factors such as funding, strategy, and human resources are actually more important.
In other words, it seems that it's not as simple as saying "changing accounting rules will stimulate business activity."
Specific facts
Another point that cannot be overlooked is the risk of discontinuing depreciation.
International standards require rigorous impairment testing instead.
Companies must annually assess the value of their goodwill based on future earnings forecasts.
This task is time-consuming and costly.
It could actually become a burden for companies that don't have adequate management systems in place.
A further problem is that if the value falls, it could result in a huge loss all at once.
In fact, there are many examples of companies operating under overseas standards that have fallen into the red due to significant impairment losses.
A "body blow type of amortization" that takes effect little by little each day,
A "large impairment loss" can come suddenly one day.
Opinions are likely to differ on which approach is healthier for a company.
Summary
I believe that systems are like a mirror reflecting a country's way of thinking.
Although it may seem like a discussion about processing numbers, it is actually also about how companies manage risk.
While I was thinking about that, my morning coffee had cooled down a bit.
This morning, I was vaguely wondering what kind of "invisible value" I would be able to discover in my work today.
