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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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1179

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

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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.

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Article
Publication date: 1 July 2020

Jani Saastamoinen, Arsen Djatej, Kati Pajunen and M. David Gorton

Accounting standards for goodwill may intensify the agency conflict. Since auditors evaluate intangible asset valuations, this study examines to what extent being an…

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1087

Abstract

Purpose

Accounting standards for goodwill may intensify the agency conflict. Since auditors evaluate intangible asset valuations, this study examines to what extent being an auditor (including Big 4 auditors) and being female as indicators of professional skepticism and conservatism predict accounting professionals' critical views of goodwill accounting under US GAAP.

Design/methodology/approach

Statistical analyses of a survey of accounting professionals in the Pacific Northwest region of the United States.

Findings

The respondents' views are dispersed from trust in GAAP to views reflecting management opportunism in goodwill accounting. While being an auditor (including Big 4 auditors) does not predict a critical perception, being a female auditor is correlated with critical views to some extent.

Research limitations/implications

The survey was carried out in a limited geographical area and personal contacts were used to maximize the response rate, which may limit generalizability.

Practical implications

Standard setters can use the results to learn how practitioners perceive the current accounting standards for goodwill. The results provide users and preparers knowledge about potential pitfalls of goodwill accounting. Preparers could increase transparency to alleviate user concerns regarding managerial opportunism in goodwill accounting.

Originality/value

This paper extends the IFRS-based literature exploring practitioners' perceptions of accounting standards by focusing on goodwill accounting in the US GAAP environment. This study also contributes to the auditing literature by providing further evidence on how gender moderates an auditor's perception of accounting standards.

Details

Journal of Applied Accounting Research, vol. 21 no. 4
Type: Research Article
ISSN: 0967-5426

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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.

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2683

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

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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…

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1437

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

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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…

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17962

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

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Article
Publication date: 12 June 2019

Lucy Cradduck and Clive M.J. Warren

The purpose of this paper is to add to the academic discourse by developing a methodology by which a block of land’s goodwill, or lack of goodwill, can be factored into…

Abstract

Purpose

The purpose of this paper is to add to the academic discourse by developing a methodology by which a block of land’s goodwill, or lack of goodwill, can be factored into its valuation.

Design/methodology/approach

The research was undertaken utilising a mixed-methods approach, which involved doctrinal research, together with qualitative and quantitative analysis of the impact of neighbourhood disputes on real property value. The disputes engaged with for exemplar purposes were those of tree disputes resolved by QCAT order.

Findings

A dispute can adversely affect a property’s goodwill, which can impact both its saleability and value.

Research limitations/implications

Due to the sensitive nature of the valuation process and the potential negative impact that any identification of a property may have on its value, it was not appropriate to identify any properties specifically or the area in which these are located. Further, as regards the available details of disputes, the authors were only able to engage with disputes for which an order existed.

Practical implications

The methodology developed can be applied to other real property interests, for example, lots in freehold retirement village complexes or those within other strata title schemes of either residential or commercial use.

Social implications

As the number of neighbourhood disputes throughout Australia grows, addressing the impact that a dispute has for property value is a concern relevant to all valuers and owners.

Originality/value

The authors add to the academic discourse by developing a methodology by which a property’s goodwill, or lack of goodwill, can be factored into its valuation.

Details

Property Management, vol. 37 no. 5
Type: Research Article
ISSN: 0263-7472

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Article
Publication date: 1 August 1999

Selvaraj D. Susela

This paper offers insights into the conflicts and tensions within the Malaysian accounting profession and the power struggle therein to dominate the accounting standard…

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7015

Abstract

This paper offers insights into the conflicts and tensions within the Malaysian accounting profession and the power struggle therein to dominate the accounting standard setting process, within the context of a rapidly developing country. It shows how interest groups and parochial interests, along with issues of self‐protection, affected the process of standard setting, which was controlled by different interests over the period under study. At one time the profession dominated. But far from being a monolithic body, it was in turn split according to various interests: the Big Six behind the Malaysian Association of Certified Public Accountants (MACPA) and the smaller firms behind the Malaysian Institute of Accountants (MIA). At other times big business prevailed. These conflicts and power struggles are revealed through an analysis of the case of the Goodwill Accounting Standard.

Details

Accounting, Auditing & Accountability Journal, vol. 12 no. 3
Type: Research Article
ISSN: 0951-3574

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Article
Publication date: 1 June 2004

Neil A. Dunse, Norman E. Hutchison and Alan Goodacre

Guidance Note 1 of the Red Book states that the valuation of an operational entity includes four components: the land and buildings; the trade fixtures and fittings; the…

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3766

Abstract

Guidance Note 1 of the Red Book states that the valuation of an operational entity includes four components: the land and buildings; the trade fixtures and fittings; the trading potential, excluding personal goodwill; and the benefit of any transferable licenses and consents. Accounting changes in recent years have increasingly recognised the importance of intangible assets such as intellectual capital and goodwill. Similarly, recent tax changes demonstrate the government's acceptance of the importance of such items in achieving and maintaining business competitiveness. This paper has two key objectives: first, to analyse the application of the Red Book to trade‐related valuations, paying particular attention to the treatment of goodwill and second, to critically evaluate the accounting treatment of goodwill and in particular the application of Financial Reporting Standard 10. In order to understand the workings of the market, the corporate hotel sector was used as a case study. The key findings of the research are that valuers expressed considerable unease with the apportioning of market value between tangible assets and goodwill, there was no consensus on how (or if) goodwill could be measured reliably. Second, that the valuation methods adopted are, to a degree, naïve. While explicit changes are made to the cash‐flow projections, there is insufficient appreciation of the changing risk profile that might lead to an adjustment to the earnings multiplier. The accounting difficulties and inconsistencies concerning goodwill arise largely because of inadequate valuation methods. Recent tax changes also point to the need for a robust and defendable valuation methodology. Application of one such theoretically sound approach to valuing goodwill (the bridge model) is illustrated in this paper. While the research focused on the corporate hotel sector, the findings have wider implications for other sectors of the market where operational entities are valued with regard to their trading potential.

Details

Journal of Property Investment & Finance, vol. 22 no. 3
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 21 September 2010

Tyrone M. Carlin, Nigel Finch and Khairil Faizal Khairi

The purpose of this paper is to contemplate the degree to which Singaporean firms comply with the highly technical disclosure requirements required under International…

Abstract

Purpose

The purpose of this paper is to contemplate the degree to which Singaporean firms comply with the highly technical disclosure requirements required under International Accounting Standards (IAS) IAS 36 specific to goodwill impairment testing.

Design/methodology/approach

The adoption of IAS in Singapore from 1 July 2004 introduced a highly technical standard (financial reporting standards – FRS 36) which has challenged many preparers. While it is generally accepted that accounting compliance may be suboptimal in transition periods as preparers accommodate change, it is assumed compliance quality improves with the passage of time. This study examines compliance of the largest 168 Singaporean goodwill‐intensive firms over a three year period, 2005‐2007, to interrogate compliance quality post‐transition.

Findings

The paper reports distinctly poor compliance systemically over the three years across many facets of goodwill impairment testing disclosures including cash‐generating unit (CGU) definition and goodwill allocation, and key input variables used in estimating CGU recoverable amounts.

Practical implications

The results raise questions about the quality of accounting information among goodwill‐intensive firms in Singapore and the robustness of regulatory oversight institutions operating within Singapore.

Originality/value

The paper illustrates a novel approach to examining the issue of accounting quality under IFRS by examining compliance quality through large sample time‐series analysis focusing on note‐form disclosures.

Details

Asian Review of Accounting, vol. 18 no. 3
Type: Research Article
ISSN: 1321-7348

Keywords

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