Search results

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.

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.

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.

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.

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.

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.

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.

The aim of this paper is to study the rhetoric of goodwill impairment, more specifically rhetoric, as it is constructed in the form of accounts (i.e. statements that explain unanticipated or untoward behavior). The authors argue that goodwill impairment is not only a technical matter but also a rhetorical practice by means of which external scrutiny is responded to.

The data corpus consists of explanations provided by corporations regarding impairment of goodwill. Data were collected from annual reports from companies quoted on NASDAQ OMX Stockholm, Sweden. The impairment explanations were analyzed according to a taxonomy of account types. The explanations were subjected to close reading to discern the potential rhetorical functions of the different accounts.

Seven account types are identified and discussed, namely, excuse, justification, refocusing, concession, mystification, silence and wordification.

There is a need for further research that explores the process of authorship (i.e. writing, editing, negotiating and revising) through which the texts of financial communication are produced.

The findings have implications for the future formulations of standards regarding qualitative explanations in financial reporting in general and explanations of goodwill impairment in particular.

The paper contributes to the knowledge about the use of natural language and rhetoric in financial communication.

The issue of goodwill has been debated in many countries throughout the world. Despite numerous efforts and the existence of accounting standards and exposure drafts issued by various professional bodies internationally, there is yet to be a universally accepted accounting treatment for goodwill. The opinion on this subject differs and changes frequently. The dichotomy of having to preserve prescribed recognition criteria on the one hand and the need to report useful information on the other has led to the many controversial issues debated on the subject of goodwill. This study centres around the international accounting treatment of goodwill in the past, present and future. This study reviewed some of the issues that surrounded the accounting for goodwill where it was found that goodwill accounting had faced many problems. Besides problems, this project also looks into the prospect of the accounting for goodwill in the cyberspace era and emergence of the knowledge‐based economy. This study confirms that controversy remains internationally with no solution in sight in the foreseeable future internationally.

The purpose of this paper is to outline the link between value creation, performance measurement and goodwill accounting according to the International Financial Reporting Standards (IFRS) and United States Generally Accepted Accounting Principles (US‐GAAP). Since economic goodwill is identical to the present value of future residual income, the paper examines how accounting information gathered for impairment testing of goodwill according to International Accounting Standard (IAS) 36 and Financial Accounting Standard (FAS) 142 can be used for internal control purposes.

The paper adopts common assumptions in the literature of residual income‐based valuation and analytically derives a periodic performance measure of both value creation and its realization based on information available from impairment testing.

This paper demonstrates that information required by IFRS and US‐GAAP to evaluate a firm's goodwill can be used to design a performance measurement system which provides information about both value creation and realization of value.

From a practical perspective, the paper shows that appropriate adjustments of data used in impairment testing result in information which ideally fits the requirements of an optimal performance measurement system.

The paper presents a performance measure which provides information about the actual creation of value as well as its realization in a period and is superior to traditional residual income‐based performance measures.

The purpose of this paper is to explore auditors' perceptions of goodwill accounting under international financial reporting standards (IFRS). More specifically, the authors surveyed auditors to see if they believe that IFRS enables earnings management in goodwill accounting. Further the paper explores background factors behind opinions.

The study uses a survey of KHT certified Finnish auditors. The electronic questionnaire was sent to 523 KHT‐auditors. The authors received 123 responses yielding a response rate of 23.5 percent.

The survey indicates that there are two lines of thought regarding goodwill accounting under IFRS. According to the first line of thought, managers of listed Finnish companies behave opportunistically in goodwill write‐off decisions. The other line of thought suggests that there is a favorable attitude towards the IFRS procedures of goodwill accounting. Big Four auditors seem to favor goodwill accounting under IFRS.

This study is conducted in Finland. Larger data collection would enhance the reliability of the results.

This study contributes to the literature by providing the perspective of auditors on fair value and goodwill as very few studies have examined goodwill issues from this viewpoint.

The purpose of this paper is to examine the effect of ownership structure on the goodwill impairment policy of Malaysian listed firms. In particular, the authors test whether the direction and magnitude of goodwill impairment are related to whether firms are government or family controlled firms. Given the highly concentrated ownership of firms in Malaysia, the authors suggest that the “entrenchment effect” will take precedence over the “alignment effect”, which will be reflected in the accounting policy on goodwill valuation and impairment.

This study utilizes logistic and Tobit regressions to test the prediction, controlling for a range of factors that might affect the goodwill impairment decision. The data were manually collected through 579 firm-year observations from the financial reports of companies listed on the Bursa Malaysia web site for the period 2003-2009.

The authors find that family controlled firms are more likely to record goodwill impairment than non-family controlled firms. The results are, however, not significant in government-controlled firms. Similar evidence in prior studies finds that Malaysian firms are more likely to recognize and record higher goodwill impairment loss in their first year of adoption than in the subsequent years. Interestingly, in contrast to prior studies, longer chief executive officer (CEO) tenure is found to be positively associated with the likelihood to recognize and record higher impairment of goodwill.

This paper is one of few studies that examine the role of ownership structure on goodwill accounting policy choice where ownership structure is highly concentrated and government owned firms play a significant role in the economy. The paper also examines goodwill policy choice before, during the transition and subsequent to the adoption of the goodwill standard in Malaysia, which has not been addressed before.

This study aims to examine whether managers use discretion in determining transitional goodwill impairment loss (initial impairment loss or IIL) upon the adoption of SFAS no. 142, Goodwill and Other Intangible Assets, and whether and how the market reacts to the impairment loss and to the absence of goodwill amortization.

Various empirical models are applied to a sample of 870 firms that completed the IIL test.

It is found that more highly leveraged firms (firms that have undergone a recent management change) report lower (greater) goodwill impairment. Stock return is not associated with a boost in earnings caused by elimination of goodwill amortization, but it is negatively associated with an unexpected IIL, with the association being stronger for highly leveraged firms. Subsequently, analysts revise earnings forecasts for upcoming quarters downward in response to the unexpected IIL.

Possibility of measurement errors in proxies is a caveat.

The findings are consistent with the strategic reduction of the goodwill impairment by management to avoid the violation of debt covenants and with the notion that new managers take a big bath so they can report higher earnings in the future. The market tests imply that unexpected IIL provides value‐relevant information about a negative view of the future profit‐making potential of the firm or an adverse impact on its debt contracts. No association with elimination of goodwill amortization can be interpreted as the market's anticipation or the lack of information content in goodwill amortization.

This research helps better understand the importance of managers' incentives in determining IIL as well as the stock market effect of the announcement of the IIL and the exclusion of goodwill amortization.

Examines the various brand asset recognition methods used by the accounting profession, within their existing rules, to highlight, first, the restrictive nature of a brand asset’s current attachment to purchased goodwill and, second, the restrictive requirement for brand asset recognition to be derived solely from a “transaction or event”. Then examines the latest rule change, FRS10, to assess whether the recognition of brand assets is likely to remain restrictive in the future. It concurs with Murphy’s view that brand asset recognition on the balance still continues to be an accounting exercise which is “fudged”.