Referencing Styles : Harvard Read the following article and adopting a Positive Accounting Theory perspective, consider the following issues: 1. If a new accounting standard impacts on profits, should this impact on the value of the firm, and if so, why? 2. Will the imposition of a particular accounting method have implications for the efficiency of the organization? Foster’s: less goodwill, higher earnings The challenges facing investors seeking a true picture of a company’s earnings during the impending profit reporting season were underlined again on Friday when Foster’s flagged it would report a $1.2 billion reduction in net assets under new accounting standards. The transition to international financial reporting standards (IFRS) means Foster’s net assets will fall from $4.6 billion to $3.37 billion based on its last reported balance sheet, mainly as a result of the internally generated goodwill on brand names not being recognized. The other major contributor to the reduction is the requirement to allow for deferred tax liabilities based on the difference between the carrying values of assets and their cost base. Despite skepticism about the likely success of Foster’s recent $3 billion acquisition of winemaker Southcorp and Foster’s ability to extract sufficient merger synergies, the changes to the reported accounts do not relate to any issues with that acquisition. The brewing and winemaking group told analysts the balance sheet adjustments wouldn’t affect its cash flow or ability to pay dividends. But reported profits will be higher than they otherwise would be because of the removal of goodwill amortization charges. Under thestandards, goodwill is instead subject to an annual “impairment test”, with the elimination of amortization expenses boosting reported profits.