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Story URL: http://management.silicon.com/smedirector/0,39024679,11031196,00.htm

Sage shareholders act over 'unusual' accounting practices
Each to their own as the saying goes...

By Joey Gardiner

Published: Friday 08 February 2002

Shares in accounting software firm Sage have fallen after speculation its profits have been propped up by unusual accounting practices.

Strangely, the firm - whose software runs accounts systems for businesses up and down the country - does not use generally accepted accounting principles.

According to the Guardian, the differences could have contributed £40m to its £120m predicted profits this year.

The problem is in the way Sage accounts for the "goodwill" of companies it has purchased.

Goodwill is the difference between the tangible assets of a business and its actual market value. Most businesses assume a reduction in goodwill of acquired businesses over time - a process known as amortisation.

However, Sage has decided to buck the trend and assume that the businesses it has bought will keep their value. The firm's finance director Paul Harrison admitted that the practice is "unusual" but defended its use.

Unfortunately shareholders were evidently spooked by the report, which led shares to fall as much as eight per cent on opening.