complexity. For instance, the pyramid structure (described
more fully in Chapter 13) favored by many Asian and
European firms can make financial statements less
transparent,becausethecontrollingstockholdersatthetopof
the pyramid can move money across group companies.
12
Growth Strategies
Firmscangroweitherthroughacquisitionsorthroughinternal
projects.Asageneralrule,accountingforinternalprojectsis
far simpler and more transparent than accounting for
acquisitions.Infact,thediscretionarychoicesforacquisitive
firms increase on the following dimensions:
- Type of firm acquired. The accounting effects of
acquisitionscanvarywidelydependingonthetypeof
firm acquired. For instance, acquiring a young
high-growth firm with significant intangible assets
willgenerateafarlargerproportionofgoodwillthan
acquiring a mature company with tangible assets. - Paymentmethod.Acquisitionscanbepaidforwith
cash, by acquiring company stock, or some
combinationofthetwo,andthepaymentmechanism
can have consequences not only for how the
acquisitionisrecordedonthefinancialstatementsbut
also on the tax liabilities that accrue to the firm. - Allocatingpurchaseprice.Sincepoolingisnolonger
allowedinacquisitions,theentirepurchasepricehas
toberecordedforallacquisitions;butthatpurchase
priceisfirstallocatedacrosstheassetsofthetarget
firmandthebalanceisrecordedasgoodwill.While
thereareguidelinesandrestrictionsonpurchaseprice