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The Reuters Group and BCE Corporation - Accounting Treatment of Goodwill and Long-term Contracts Analysis

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This work will include the analysis of the accounting treatment of certain asset categories of two major companies in the sphere of media and communications – The Reuters Group and The BCE Corporation.

The Reuters Group is a huge corporation that includes Reuters Information Company and Instinet Group, which is a public subsidiary 63% of whose assets belong to Reuters group and operates the largest electronic agency brokerage in the world. Reuters, the global company operating in the sphere of information, provides information and software for professionals in a set of areas – financial services, corporate markets and mass media. Information provided by Reuters is one of he most rusted global sources and is decision-making factor across the globe due to the Company’s reputation for accuracy, speed and independence of information. By the end of 2003 Reuters had staff amounting to 16000 in 92 countries, including editorial stuff reaching 2,400 professionals in 197 bureaus that serve about 130 countries. Instinet group amounts approximately 1,200 employees working in eight countries. In 2003, the revenues of Reuters Group reached £3,2 billion.

Another company subject to analysis in this paper is BCE Corporation. BCE is the largest communications company in Canada. Today, it operates under four segments, which are as follows: Bell Canada, Bell Globemedia, BCE Emergis and BCE Ventures. Since the work is interested in competitive analysis of wireless sector, the analysis will focus on Bell Canada, as far as it is provider of wireless communications, along with local telephone, wire lines communications, Internet access, DTH (direct-to-home) satellite TV, data and other services to both business and residential customers through the network’s 26 billion customer connections.


The first asset category to be analyzed in this paper is Goodwill.

To find the goodwill number, one should calculate the difference between the fair value of the paid consideration and the fair value of the company’s share of the net assets at the acquisition date. That is the way the goodwill is calculated in Reuters Group. In this, no value is attributed to intangible assets generated inside the company. According to the Reuters Group accounting practice, purchased will and other intangible assets are amortized and capitalized through the account of profit and loss on a straight line ground during their estimated economic lives which are calculated up to about 20 years depending on the characteristics of the acquired business. Reuters group carries out impairment reviews at the end of first financial year after acquisition of the business where there any indication of impairment exists. Impairment is estimated by comparison of the carrying value of the definite asset with the higher figure of the net realizable value and value in use. Any charges for impairment are introduced in the profit and loss account for the period during which they emerge (Bragg, 2003).

There is a problem facing Reuters that concerns discrepancy of accounting standards in its UK and US offices. Reuters is a multinational company therefore problems of such kind are common for companies with such nature. Under UK GAAP, goodwill and other intangibles are subject to amortization. Under US GAAP, before July 2001, goodwill was amortized during its estimated useful life, compatible with UK GAAP. But in 2002 Reuters adopted the rules of Financial Accounting Standard # 142 (FAS 142) titled “Goodwill and other Intangible Assets” which resulted in deletion goodwill from the list of assets subject to amortization under US GAAP. Moreover, provision of non-amortization of goodwill entered into force for goodwill on all acquisitions carried out after 30 June 2001. Under UK GAAP, reviews on goodwill impairment should performed out in the end of first financial year after asset acquisition where any impairment indication takes place. Under US GAAP, according to FAS 142 requirement, the Group carried out transitional impairment test 1 January 2002. Also, the Group conducts goodwill impairment reviews whenever the Groups deems there is some impairment indication. Also, according to FAS 142, Reuters completes annual tests on goodwill impairment starting from 2002. Under UK GAAP, the fair value of securities issued with a view of effecting business combination is calculated at the market price at acquisition day. US GAAP determines fair value of the securities issued by market price for some period prior and after acquisition date. Also, under UK GAAP, goodwill includes contingent consideration and records it as liability at acquisition time. US GAAP records contingent consideration as an adjustment to goodwill at the day of realization. Both UK and US GAAP demand that allocation of purchase consideration concerning acquired subsidiaries was on the basis of fair values to the different net assets of the asset acquired at the acquisition date. Also, both UK and US GAAP require holding identifiable intangible assets separately from goodwill (Antoniotti, 1998). Since US GAAP uses different definition of intangible assets, it may identify additional intangible assets. Thus, we see that accounting practice of Reuters group with respect to goodwill is very peculiar. Particularly it has to perform different goodwill calculations in its different offices according to either UK or US GAAP resulting in different and very often discrepant numbers.

BCE Corporation identifies goodwill on acquisitions as the excess of the fair value of given consideration and costs associated with the asset over the fair value of identifiable assets and acquired acquisitions. Bell Canada usually measures impairment by projected discounted cash flow method and confirm received results with other evaluation methods. If carrying value of the asset is more than its fair value, the difference is recorded as a goodwill reduction on balance sheet and charge for impairment in operations statement. While calculating fair value with projected discount cash flow method, a number of important estimates should be made. Such estimates include: predicted growth rates for future revenues, EBITDA and cash flows figures, time period used in the cash flow model, discount rate for further cash flows and many other estimates. All BCE estimates are really reasonable. They go in line with the Company’s internal planning and reflects its best calculations and estimates, nevertheless, they contain inherent uncertainties which are not subject to management control. Any change in any of the estimate used in calculations materially impacts calculation of fair value and results in changes to impairment charge. Therefore, the Company states that it is unable to predict if the event that incites impairment will occur, when it will take place and how it will impact the reported asset values.

BCE calculates goodwill of single reporting units for impairment in the fourth quarter of each year and whenever changes into circumstances might incite impairment of goodwill. The goodwill for impairment is assessed in two steps: identification of a potential impairment by comparing fair value of the unit reporting to its carrying value. If fair value of the unit is less then its carrying value, it is allocated to all assets and liabilities of the unit on the basis of their fair values. The amount of reporting unit’s fair value exceeding those assigned to its assets and liabilities is goodwill fair value. Second sep of the process is determination of impairment if any by comparing fair value of the goodwill with its carrying value. Any access of this fair value is deducted from the Company’s earnings. Thus, accounting practice of BCE Company is different from one of Reuters, it is uniform and straightforward, still there are some inconsistencies such as some uncertainties inherent to some estimates which may change the calculations of goodwill impairment.

Another asset category subject to analysis is Long-Term Contracts. The contractual financed obligations of the Reuters Group are given in the table below. The Group plans to fund the obligations from external facilities and operation currently in the process.

[Table omitted]

Reuters has signed material long-term contracts with the following companies:

  • Island Merger Agreement (June 2002): Acquisition of 86 million shares of Island ECN;
  • Agreement with Savvis Network Services. Savvis agreed to provide internet protocol services, co-location and internet access services;
  • Agreement with Equants on establishment of joint venture Radianz offering secure internet protocol services to the industry of financial services. According to the agreement, Reuters owns 51% of Radianz;
  • Agreement with, Inc. on acquisition of all outstanding equity of Multex;
  • Transitional Service Agreement with Moneyline Telergate Holding following Moneyline’s and Reuters’ acquisitions of Bridge Information Systems.

Bell Company has the following picture of its financial obligations.

[Table omitted]

When analyzing the difference in performance of the companies concerning this asset category, one should take into account that figures are calculated in different currencies – those of Reuters in pound sterling, those of Bell Canada in US dollars.

The tables show that the figures of Bell’s contractual obligations are higher than those of Reuters. BCE’s commitments for capital expenditures include company’s investments to networks update and expansion, and contractual obligation under service contracts. Other BCE long-term liabilities concern:

  • Bell Canada payments to Certen for the development of Bell Canada billing system.
  • Agreement with CGI relating to ownership of BCE in CGI.

The information above gives the ground to conclude that while Reuters contractual obligation in their majority deal with acquisition of property, assets or shares of other companies, BCE’s contracts focus on establishment partnership with companies with a view of providing new services and implementing new technologies.


Among two asset categories analyzed in the work – Goodwill and Long-Term Contracts, most differences in accounting treatment deal with goodwill assessment. While Reuters has internal discrepancies in its British and American offices as to different UK and US GAAP accounting standards resulting in different calculations, BCE calculates goodwill impairment in a uniform way (which is understood since the company operates mainly within Canadian territory) with projected discounted cash flow method. Nevertheless, it has its own shortcomings, which are expressed in inconsistencies such as some uncertainties inherent to some estimates that may change the calculations of goodwill impairment.


Bragg S. Accounting Best Practices. Wiley; 3rd edition, 2003

Gibson R. Asset Allocation: Balancing Financial Risk. McGraw-Hill, 2000

Antoniotti W. Financial Accounting Practice Sets. 21st Century Learning Products, 1998

Reuters Group PLC Annual Report and Form 20-F 2004. Retrieved from

BCE Annual Report. Jones & Palmer Limited, Birmingham, 2004.

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