PWC has issued Accounting for typical transactions in the football industry: Issues and solutions under IFRS.

I was certainly surprised that a sufficient readership exists for such a seemingly narrowly-targeted publication. The foreword suggests it’s aimed primarily at those toiling within the industry itself: “We hope you find this publication useful in understanding the accounting for common transactions that you encounter in your business.” It’s hard not to think though that the purpose must in large part be one of broader branding: that is, an accounting firm with an entire publication on IFRS in the football industry (and, it appears, a Football Industry Accounting Group) must be pretty cool, at least relative to the others (in accounting, any notion of coolness is always relative).

Even for those of us who don’t follow football and aren’t likely to ever have to account for it, there’s some interest value in scanning the variety of contractual arrangements that might arise. The broad point underlying many of the items is the applicability of IAS 38. For example:

• Real London recruited Yazenito on a four-year contract. As part of this permanent transfer, Real London agrees to pay an amount of €1,000 to the former club (Madrid United) to transfer the player’s registration rights.

These costs “meet the definition of an asset, because they are a resource controlled by Real London, and they meet the definition of an intangible asset in paragraph 8 of IAS 38, because they arise from legal rights (IAS 38 para 12) and lack physical substance.” Given the possibly mercurial nature of such performers (and of the bouncing ball), we might all imagine that the concept of these individuals as resources subject to control is often a bit tenuous, but I suppose it’s the best analysis there is. If nothing else, it’s presumably the best representation of what Real London think they’re accomplishing by paying that amount and entering into the contract. Some of the examples get pretty complicated, pretty fast. For instance, a scenario encompassing a loan arrangement with an option to transfer yields an analysis encompassing more than ten different steps and considerations, including an election of whether or not to apply IFRS 16, assessments of likelihood, allocations between different assets, impairment testing, and so on.

This one’s interesting for different reasons:

• Real London paid €800 for the permanent transfer of Yazenito’s registration rights. In accordance with IAS 38, the amount paid has been capitalized as an intangible asset, under the category ‘Players’ registration costs’. Six months after the transfer, Yazenito shows poor match performance but still trains and plays regularly within the main squad.

One might leap to the conclusion that the related intangible asset might well be assessed as impaired to some extent and written down accordingly. But no…

• Yazenito’s poor form is not an impairment indicator for his registration rights. This is because a single player is not a cash-generating unit (‘CGU’) under IAS 36. It is not possible to estimate the recoverable amount of a single registration, because a single player playing with the main squad does not generate cash inflows that are largely independent…Typically, the recoverable amount of the CGU to which the asset belongs is likely to be the main squad as a whole.

This is distinguished from the situation where the player is sufficiently badly injured so as to threaten the rest of his career: in that case an asset-specific impairment indicator exists, such that the asset’s recoverable amount can be assessed separately. This example chimes somewhat against the situation I addressed here. The broad point is that while it wouldn’t be rational or practical to require that each material asset be individually assessed for impairment (hence the CGU concept), the technicalities of IAS 36 shouldn’t be used to avoid identifying and responding to flagrantly non-recoverable assets.

Anyway, most of us can probably go through our careers without ever having to make accounting determinations that so specifically relate to specific people (leaving aside stock options and termination benefits). It’s only possible in this case of course because of the existence of the contracts (and perhaps only necessary because of the large amounts involved). IAS 38 continues to note that “an entity usually has insufficient control over the expected future economic benefits arising from a team of skilled staff and from training for these items to meet the definition of an intangible asset.” True enough, and yet the economic prospects of such an entity may depend more on those staff than on any of the things recognized on the balance sheet. Of course, this is just one element of the long-running conversation about how financial statements often fail to represent more than a minor proportion of an entity’s market value. Perhaps if we all got accustomed to thinking about footballers in accounting terms, it would help us along towards grappling with more of those boundary-pushing issues…

The opinions expressed are solely those of the author