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Article
Publication date: 3 July 2017

James G.S. Yang and Frank J. Aquilino

The accounting standards for consolidated financial statements have been updated recently. The change involves the measurement of goodwill and noncontrolling interest…

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Abstract

Purpose

The accounting standards for consolidated financial statements have been updated recently. The change involves the measurement of goodwill and noncontrolling interest. Under the new accounting standards, goodwill consists of not only the parent company’s portion but also the noncontrolling interest’s share. The noncontrolling interest comprises both the subsidiary’s identifiable net assets and goodwill. In addition, it further changes the treatment of noncontrolling interest from liability to equity. The change indeed has far-reaching consequences on financial statements. This paper formulates an equation to measure goodwill and noncontrolling interest. It also provides some examples for illustrative purposes. The purpose of this paper is to update the financial reporting to the current standards.

Design/methodology/approach

New accounting standards under FASB #141R and 160.

Findings

New accounting standards in measuring goodwill and noncontrolling interest in financial reporting.

Research limitations/implications

The knowledge is useful for accountants and financial analysts.

Practical implications

Improve the quality of financial statements.

Social implications

Investors will be better informed.

Originality/value

This new accounting standard was not explored before.

Details

Journal of Financial Reporting and Accounting, vol. 15 no. 2
Type: Research Article
ISSN: 1985-2517

Keywords

Article
Publication date: 9 August 2022

Qiubin Huang and Mengyuan Xiong

This paper aims to examine the effects of managerial ability (MA) on the likelihood and the timeliness of goodwill impairment and explore whether the desirable effect of…

Abstract

Purpose

This paper aims to examine the effects of managerial ability (MA) on the likelihood and the timeliness of goodwill impairment and explore whether the desirable effect of MA vary with the degree of agency problems.

Design/methodology/approach

The authors propose a unified framework to simultaneously examine the effects of MA on the likelihood and the timeliness of goodwill impairment by incorporating a market-based impairment indicator (denoted as BTM), MA and the interaction of BTM with MA to this study’s regression model to account for the likelihood of goodwill impairment. BTM addresses the timeliness of goodwill impairment.

Findings

This study finds that firms with higher MA have lower likelihood of goodwill impairment, and such firms are more likely to recognize goodwill impairment in a timely manner when the underlying value of goodwill is economically impaired. This desirable effect of MA is more pronounced in non-state-owned enterprise (SOEs) and firms without chief executive officer (CEO) duality.

Practical implications

Firms can reduce the losses arising from goodwill impairment by enhancing the ability of their management teams combined with improved corporate governance structure.

Originality/value

This paper provides novel insights on understanding the role of MA in not only reducing the likelihood but also enhancing the timeliness of goodwill impairment. The findings help advance the upper echelons theory by uncovering the heterogenous effects of executives with different levels of ability.

Details

International Journal of Emerging Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 26 May 2022

Jakeun Koo, Janet S. Fink and Younghan Lee

The present study aims to examine whether event size has a significant impact on consumers' perceptions of goodwill. In the relationship between event size and perceived…

Abstract

Purpose

The present study aims to examine whether event size has a significant impact on consumers' perceptions of goodwill. In the relationship between event size and perceived goodwill, sponsorship duration and sponsor-event congruence are tested as moderating variables.

Design/methodology/approach

This study conducts an experiment with a 2 × 2 × 2 between-subjects factorial design.

Findings

The results show the main effects of event size on perceived goodwill, and the moderating effects of sponsorship duration and sponsor-event congruence in the relationship between event size and perceived goodwill. Also, regression analyses test the relationships among the dependent variables including perceived goodwill, attitudes toward the sponsor, and purchase intentions.

Originality/value

Marketing practitioners may discover the merits of a corporation sponsoring local events at lower costs, and the importance of duration and congruency.

Details

Marketing Intelligence & Planning, vol. 40 no. 5
Type: Research Article
ISSN: 0263-4503

Keywords

Book part
Publication date: 27 October 2020

Elizabeth A. M. Searing, Daniel Tinkelman and

In 2009 and 2010, the Financial Accounting Standards Board (FASB) adopted new accounting standards for nonprofit mergers and acquisitions. The new accounting standards are…

Abstract

In 2009 and 2010, the Financial Accounting Standards Board (FASB) adopted new accounting standards for nonprofit mergers and acquisitions. The new accounting standards are an example of the constitutive role accounting can play in how people think about economic events, since the FASB defined a new concept (the “inherent contribution”) and required valuation of intangible assets that were often previously unrecognized.

The FASB’s stated goals included minimizing “pooling” accounting and maximizing transparency regarding fair value information, acquired identifiable intangible assets, and the relation between consideration paid and the fair values of identifiable assets acquired. The FASB expected many combinations would involve little or no consideration. It also expressed concern that some organizations would undervalue assets acquired, especially intangible assets.

For a sample of 2012–2017 nonprofit hospital combinations, we find general agreement with the FASB’s expectations. Almost all combinations were accounted for as acquisitions, not mergers, even though there was frequently no consideration paid. More acquirers recorded “inherent contributions” than goodwill, because the net fair value of the acquired hospital’s identifiable assets exceeded the consideration paid. Acquirers ascribed value to assets, such as intangible assets, that would have gone unreported under the prior accounting rules, although lower levels of intangible assets were recognized in nonprofit business combinations, relative to total non-goodwill assets acquired, than in public companies’ acquisitions.

Article
Publication date: 13 May 2022

Francisca Pardo and Begoña Giner

Goodwill recognized in a business combination is one of the most controversial issues in financial reporting, and is subject to a vast amount of disclosure in the…

Abstract

Purpose

Goodwill recognized in a business combination is one of the most controversial issues in financial reporting, and is subject to a vast amount of disclosure in the financial statements. Based on the impression management framework, this paper investigates the managerial determinants of compliance with the disclosure requirements on the goodwill impairment test.

Design/methodology/approach

The authors construct a disclosure index and hand-collect the information disclosed in the notes to the financial statements. The authors perform univariate and multivariate analyses, estimating panel data models in Spanish IBEX 35 firms, in 2008–2017.

Findings

Compliance with the impairment test information requirements is used as an impression management strategy to conceal opportunistic behavior related to non-impairment and signal positive values related to growth opportunities and low leverage.

Research limitations/implications

The results are based on a single country, characterized by low enforcement and although that helps to consider the role of impression management under a compulsory reporting system, it also requires some caution in their generalization.

Practical implications

The results might be useful for advancing the current International Accounting Standards Board (IASB) project, but also for other stakeholders since understanding firms' behavior facilitates making decisions. They might also help managers to reconsider their disclosure strategies towards third parties.

Social implications

The results may be useful for society, since they show a likely consequence of managerial opportunistic behavior. They could also assist regulators and enforcers to identify firms with incentives for non-compliance.

Originality/value

This study provides a theoretical and conceptual contribution to explain how firms use disclosure as a managerial strategy in a rather different context to the one used in previous research since it focuses on audited and regulated corporate reports. It is based on the impression management as the vehicle to strategically manipulate users' insights and decisions.

Details

Baltic Journal of Management, vol. 17 no. 4
Type: Research Article
ISSN: 1746-5265

Keywords

Article
Publication date: 22 February 2022

Eleftherios Pechlivanidis, Dimitrios Ginoglou and Panagiotis Barmpoutis

The purpose of this study is to investigate the value relevance of goodwill and its additional aspects during a long-term period in Greece. Furthermore, by implementing…

Abstract

Purpose

The purpose of this study is to investigate the value relevance of goodwill and its additional aspects during a long-term period in Greece. Furthermore, by implementing two of the most popular value relevance models, the Ohlson’s price and Easton and Harris’ return model, this study examines the impact of goodwill on Greek stock prices from 2007 to 2018, a period of 12 years in which International Financial Reporting Standards (IFRS) are applied. Furthermore, this study analyzes how goodwill’s value relevance changes as it ages and during the Greek debt crisis.

Design/methodology/approach

In order to test the value relevance of goodwill we implemented two of the most popular value relevance models, Ohlson’s price and Easton and Harris’ return model. Our sample consists of non-financial listed Greek companies that reported positive goodwill accounting balances on their financial statements during the financial period from 2007 to 2018. Finally, we applied fixed-effects regression model to all equations.

Findings

The results provide evidence that the year-end goodwill accounting balance is value relevant, and that the debt crisis has improved goodwill’s information content. Finally, the empirical findings suggest that only current year acquired goodwill is value relevant compared to older goodwill, and therefore, goodwill’s impact on stock prices is decreasing as it ages.

Research limitations/implications

A noteworthy limitation of this study is that it focuses on a specific code-law country Greece, which is a relatively small economy compared to the whole Eurozone. This research contributes to the research literature as it confirms other research findings in the European context and specifically that goodwill based on IFRS is value relevant to financial statement users. Additionally, it investigates for the first time how goodwill was affected by the Greek debt crisis. Finally, it contributes to other researcher’s debate concerning the duration of goodwill’s value relevance in a code law environment such as Greece.

Practical implications

Financial analysts and institutions are provided with more assurance about goodwill’s financial reporting quality to be embedded in the financial evaluation process of corporates. As this research confirms that goodwill should be regarded as an asset, companies should obtain better financial ratings from financial institutions and investors and thus will have better access to equity and debt funding.

Originality/value

We investigate the value relevance of goodwill in Greece during a long-term period of 12 years. Additionally, our study examines the impact of the Greek debt crisis on the information content of goodwill accounting balances and the period during which accumulated goodwill balances and within-year acquired goodwill maintain its value relevance. Our research could assist accounting standard setters such as the International Accounting Standard Board to evaluate the quality of specific standards such as IFRS 3 “Business Combination” and IAS 38 “Impairment of Assets.”

Details

International Journal of Accounting & Information Management, vol. 30 no. 2
Type: Research Article
ISSN: 1834-7649

Keywords

Article
Publication date: 27 October 2021

Yanxi Li and Shanshan Ouyang

The purpose of this study is to examine the impact of controlling shareholders’ share pledging on goodwill impairment.

Abstract

Purpose

The purpose of this study is to examine the impact of controlling shareholders’ share pledging on goodwill impairment.

Design/methodology/approach

This study empirically investigates the effect of controlling shareholders’ share pledging on both the decision and amount of goodwill impairment for Chinese listed firms from 2007 to 2017.

Findings

This study finds that the proportion of controlling shareholders’ share pledging is negatively related to both impairment decisions and amounts; these negative relationships are intensified when firms face high stock price crash risks. In addition, the empirical results show that firms with larger share pledging are less likely to recognize goodwill impairment or are likely to record relatively smaller impairment amounts when they are followed by fewer financial analysts.

Originality/value

Most of the relevant literature has focused on managers’ behaviors toward goodwill impairments, while less attention has been given to goodwill impairments from the perspective of controlling shareholders. In fact, controlling shareholders may have strong incentives to protect their control rights when they exercise disproportionate control rights, especially in China. Given the high ownership concentration, prior studies may not have adequately explained the agency problem of controlling shareholders in goodwill impairment. This study uses share pledging as a case to fill this gap. Specifically, it investigates whether both goodwill impairment decisions and amounts are affected by controlling shareholders’ share pledging.

Details

International Journal of Accounting & Information Management, vol. 29 no. 5
Type: Research Article
ISSN: 1834-7649

Keywords

Article
Publication date: 14 September 2010

Grant Samkin and Craig Deegan

The primary aim of this paper is to illustrate how goodwill impairment loss should be accounted for when measuring non‐controlling interest in subsidiaries.

2740

Abstract

Purpose

The primary aim of this paper is to illustrate how goodwill impairment loss should be accounted for when measuring non‐controlling interest in subsidiaries.

Design/methodology/approach

The paper uses two scenarios to illustrate how non‐controlling interest in subsidiaries should be measured in the presence of goodwill impairment loss.

Findings

The way the management of a reporting entity values the non‐controlling interest in a subsidiary will result in different amounts being disclosed in financial statements for non‐controlling interest in earnings, non‐controlling interest, retained earnings and total equity.

Research limitations/implications

The paper uses two scenarios to illustrate a simple consolidation with a parent entity, a subsidiary and a sub‐subsidiary.

Practical implications

Practical guidance on how goodwill impairment losses under International Accounting Standard 36 Impairment of Assets when measuring non‐controlling interest under International Financial Reporting Standard 3 Business Combination, is provided.

Originality/value

The paper corrects any misunderstanding that may exist on the impact goodwill impairment losses have on closing equity when non‐controlling interest is calculated under the different methods of valuing non‐controlling interest.

Details

Accounting Research Journal, vol. 23 no. 2
Type: Research Article
ISSN: 1030-9616

Keywords

Article
Publication date: 1 April 2005

A. Wiese

When the FASB adopted an impairment test approach in 2001, rather than amortisation, the accounting for goodwill arising from an acquisition took a step in a new…

1532

Abstract

When the FASB adopted an impairment test approach in 2001, rather than amortisation, the accounting for goodwill arising from an acquisition took a step in a new direction. The IASB, seeking international convergence and global harmonisation, also implemented this change when it issued IFRS 3 in 2004. Moving away from amortisation towards an impairment test involves a radical change. The research on which this paper is based was undertaken to examine these two very different accounting practices for the treatment of goodwill and to assess the possible impact that a transition from the one to the other may have on financial reporting.

Details

Meditari Accountancy Research, vol. 13 no. 1
Type: Research Article
ISSN: 1022-2529

Keywords

Article
Publication date: 16 October 2007

Graeme Wines, Ron Dagwell and Carolyn Windsor

This paper aims to critically examine the change in accounting treatment for goodwill pursuant to international financial reporting standards (IFRSs) by reference to the…

18355

Abstract

Purpose

This paper aims to critically examine the change in accounting treatment for goodwill pursuant to international financial reporting standards (IFRSs) by reference to the Australian reporting regime.

Design/methodology/approach

The paper discusses and compares the former Australian and the new IFRS treatments for goodwill. This comparison focuses on the advantages and potential complexities of the new method, with the aim of identifying the issues and challenges that preparers, independent auditors and those involved in corporate governance face in complying with the new requirements.

Findings

The paper highlights that the identification and valuation of cash‐generating units and goodwill require numerous assumptions to be made in estimating fair value, value in use and recoverable amount. Considerable ambiguity and subjectivity are inherent in the IFRS requirements.

Research limitations/implications

Findings suggest that future research should examine how financial report preparers and corporate governance mechanisms are dealing with the complex change required by the new goodwill accounting treatment and how the many critical issues involved in auditing the resulting figures are being addressed.

Practical implications

The research has practical implications for financial report preparers in identifying the issues that must be addressed in complying with the international goodwill accounting treatment. In turn, the paper highlights conceptual issues of relevance to auditors in their role of providing assurance on the resulting accounting numbers. It also has implications for others involved in corporate governance, such as audit committee members, in emphasising the areas in which they should be providing oversight of the accounting judgments. These issues are of relevance in any reporting regime based on IFRSs.

Originality/value

While much has been written about the mechanics of the new goodwill accounting requirements, there has been a lack of critical research highlighting the many problems and ambiguities that will arise in the application of those rules.

Details

Managerial Auditing Journal, vol. 22 no. 9
Type: Research Article
ISSN: 0268-6902

Keywords

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