Kerry Packer’s PBL will be forced to write down the carrying value of its television licences by more than $400 million under new international accounting standards. And it may be forced to write-down the value of some of its magazine mastheads by an as yet unquantified amount.
The changes are disclosed in the fine print in last week’s annual accounts. The statement reveals that some significant accounting changes are coming because of the looming introduction of much tougher international accounting standards.
The changes are detailed in a full page of comment by directors. PBL says its still early days in the changes, but they have provided enough hints to guess that changes will happen. Page 14 of the PBL media release lists the areas of possible change.
The most important change seems to be the treatment of intangible assets such as television licences. Because the new standard demands that a market exist so carrying values for intangible assets can be tested and any revaluation justified, PBL is stuck between a rock and a very hard place.
There is no market in Australia for TV licences, a situation PBL has recognised and pointed to a write-down against reserves.
On intangible assets directors say:
“Recorded intangible assets with an indefinite life are not amortised but are subject to an annual impairment test to ensure the recoverable amount is not less than the carrying value. This treatment is consistent with PBL’s current treatment of television licences and magazine mastheads.
“No revaluation of intangible assets is permitted unless there exists an active market for the asset. With no active market for television licences, the increases that PBL recorded in carrying value above cost in a previous financial year will be reversed against reserves in the amount of $423 million.”
Just this change alone, without any compensating lift in asset values (which is much harder under the new standards) will slice around 75c a share off PBL’s Net Tangible Asset backing per share.
In addition AASB 138 imposes specific rules as to when an intangible asset can be recognised. Directors said “PBL are (sic) currently considering whether all of the mastheads recognised meet these requirements. Should the mastheads not meet these requirements some balances may be written off against retained earnings and some balances may be transferred to goodwill.”
Other areas of interest include the Classification of Financial Instruments and Hedge Accounting, which given the performance of the Aussie dollar, is of great importance, to the more frontline issues such as Goodwill and Intangible Assets.
As well issues are the question of impairment of those intangibles, valuing Employee Benefits and Income Taxes are other areas that will see changes.
For example, under Income Taxes, PBL directors point out that while ‘the amounts involved have not been quantified”, the adoption of new Accounting Standard AASB 112 will require PBL to use a balance sheet liability method.
This, they saw “is likely to result in the recognition of additional deferred tax liabilities.” Ah, deferred taxes, the first refuge of the modern tax accountant.
PBL uses them, like every other company and if readers flick to Page 13 of the PBL report they will find the explanation for why PBL’s tax bill was less than half what it should have been.
Deferred tax played a small part in reducing the tax take ($5.14 million). The big factor was a $57.89 million ‘capital profit on sale of investments and $45 million worth of “difference in tax and accounting asset base”. That meant the tax bill at 30c in the dollar of $241.9 million, was slashed by $112.93 million to $128.98 million).
That lower tax bill was the single biggest factor in PBL reporting a sharply higher profit after the rise in ad revenues at the Nine Network and the sale of assets owned in the Monarch group in the US.
Elsewhere in their explanation, directors saw the new accounting standard for Goodwill is still be worked through. Under the new standard Goodwill will not be amortised but will be subject to annual impairment testing. Like all other issues, directors say it’s still too early to say what the impact will be.
Likewise on Intangible Assets which in the short accounts are valued at $283.1 million (down from $294.6 million).
Then there are other ‘intangible assets such as “licences and mastheads”. They are separated in the PBL accounts and listed with a value of $2.916 billion, bigger than property, plant, and equipment of $1.419 billion.
They are the largest group of assets in PBL. The licences and mastheads relate to the values attached to the licences for Channel Nine stations in Sydney, Melbourne and Brisbane, NTD 8 in Darwin and the value of all the magazines at ACP.
On the question of Impairment of Assets, it’s clear from directors comments that this will apply especially to the value of magazine mastheads, but its still too early to be precise.
Under Employee Benefits, companies must show net surpluses or deficits in their sponsored defined benefit super funds as an asset or a liability. PBL says again it’s too early to give an impact.