Accounting for Football

Journal of Business Finance & Accounting, 32(3) & (4), April/May 2005, 0306-686X

Discussion of Accounting, Valuation and Duration of Football Player Contracts
JOHN FORKER*

Investment by football clubs in player contracts provides a natural experiment to evaluate the mandated accounting requirement that purchased intangible assets must be capitalised (ASB, FRS 10, 1997b). The study is well grounded for three reasons. First, the availability of industry level transaction price data for transfer fees, second, a choice between capitalisation and amortisation of purchased intangible assets and immediate expensing was exercised in the UK prior to FRS 10, and third, in the period 1991–1998 only five out of the 58 clubs included in the study did not select immediate expensing, and only three clubs switched accounting methods. The aim of the paper is to investigate whether the accounting regulation (FRS 10, ASB, 1997a: IAS 38 (Revised), IASB, 2004b: SFAS 142, FASB, 2001) that purchased intangibles must be capitalised is appropriate. In these standards the application of the asset recognition criteria, that the expected future benefits from the asset are probable and will flow to the entity, is taken to be satisfied by the existence of the purchase transaction (IAS 38 (Revised), 2004b, para. 21). The authors’ question the adequacy of this line of reasoning on two grounds. First, some
*The author is Professor of Accounting at Queen’s University Belfast. Address for correspondence: John Forker, School of Management and Economics, Queens University Belfast, Belfast BT7 1NN, Northern Ireland, UK. e-mail: [e-mail]
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assets may be so speculative as to cast doubt on the prospect of recovery, and second, even if the duration of the asset is longer than one year the costly procedures associated with asset valuation

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