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Article
Publication date: 30 November 2023

Elisa Roncagliolo

This study aims to contribute to the debate on goodwill accounting by examining the information content of impairment losses recognized in half-yearly reports. Half-yearly reports…

Abstract

Purpose

This study aims to contribute to the debate on goodwill accounting by examining the information content of impairment losses recognized in half-yearly reports. Half-yearly reports provide a suitable context to examine the effectiveness of the impairment process. Due to IFRIC 10 requirements, indeed, managers may have incentives to avoid recognizing impairment losses at the interim reporting date.

Design/methodology/approach

The study adopts an archival approach. Based on the traditional Ohlson’s model (1995), it explores the information content of half-yearly impairment losses in the European context over the period 2007–2017.

Findings

Findings confirm the relevance of half-yearly reports and suggest that half-yearly impairment losses are significantly associated with stock prices. In particular, investors positively value companies that recognized goodwill impairment losses at the interim reporting date.

Research limitations/implications

The study contributes to the academic debate on goodwill and the effectiveness of the impairment procedure. In particular, it provides empirical evidence on the recognition of goodwill write-offs when it is possible to avoid the impairment test in the absence of indications of impairment.

Practical implications

Findings of this study can support the current debate on accounting for goodwill also in the light of the recent proposals of the IASB on the need to improve the effectiveness of the impairment test.

Originality/value

This study provides original empirical evidence on the goodwill impairment test in half-yearly reports, extending previous research that typically examines this issue in annual reports.

Details

International Journal of Accounting & Information Management, vol. 32 no. 2
Type: Research Article
ISSN: 1834-7649

Keywords

Article
Publication date: 13 December 2023

Fernando Ruiz-Lamas and David Peón

This article analyses the recent inverse transition from goodwill impairment to goodwill amortisation implemented in Spain in 2016. The authors contribute to the existing…

Abstract

Purpose

This article analyses the recent inverse transition from goodwill impairment to goodwill amortisation implemented in Spain in 2016. The authors contribute to the existing literature by describing their differing impact over goodwill and impairment figures and testing the impact of goodwill on balances over stock prices.

Design/methodology/approach

First, using a database with all Spanish non-financial firms with positive goodwill on their balance sheets, the authors describe the impact of the regulatory change over goodwill and impairment figures. Second, focussing on listed firms only, the authors study the impact of financial reporting of goodwill and impairment on stock prices.

Findings

Average goodwill per company and the share of goodwill over total assets significantly reduced after 2016, but the results cannot be easily extrapolated to listed firms due to lack of data. When testing the impact of potentially inflated goodwill balances on prices, the authors find that investors kept overvaluing firms with inflated goodwill balances also with the amortisation method.

Research limitations/implications

The lack of data for listed firms with goodwill in Spain makes it difficult to obtain statistically sound evidence, the results could be biased by the cultural traits of the country and related to the intensity of enforcement and monitoring.

Practical implications

This might suggest that the effects of the impairment method linger, so the authors conform to the interpretation that the systematic amortisation paired with a periodic impairment test may lead to accounting that better reflects the underlying economics of goodwill.

Originality/value

To the best of the authors' knowledge, there are no recent articles that analyse this new “turn-around” requiring again the systematic amortisation of goodwill.

Details

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

Keywords

Article
Publication date: 17 November 2023

Eun Hye Jo and Jung Wha Lee

This study aims to investigate the impact of human resource investment in internal controls (hereinafter, IC personnel) on managers’ goodwill impairment decisions.

Abstract

Purpose

This study aims to investigate the impact of human resource investment in internal controls (hereinafter, IC personnel) on managers’ goodwill impairment decisions.

Design/methodology/approach

The authors use the ratio of IC personnel to the number of employees in the firm and the average work experience of IC personnel as quantitative and qualitative measures for IC personnel, respectively.

Findings

The authors find that the relationship between the likelihood of impairment and the expected impairment is not associated with the ratio of IC personnel. However, the average experience of IC personnel increases the likelihood that a company will record an impairment when there are market and financial indicators of impairment. The findings suggest that the effectiveness of IC is determined by practical proficiency rather than size. Furthermore, our analyses demonstrate that the greater the experience of the IC personnel in the accounting/finance or IT departments, the more likely the manager will record an expected impairment. Overall, our findings emphasize the importance of IC personnel expertise to enhance the effectiveness of IC for financial reporting.

Originality/value

Using unique data available only in Korea, to the best of the authors’ knowledge, this is the first study to show the effect of human resource investment in IC on goodwill impairment.

Details

Pacific Accounting Review, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0114-0582

Keywords

Open Access
Article
Publication date: 8 February 2024

Henri Hussinki, Tatiana King, John Dumay and Erik Steinhöfel

In 2000, Cañibano et al. published a literature review entitled “Accounting for Intangibles: A Literature Review”. This paper revisits the conclusions drawn in that paper. We also…

1974

Abstract

Purpose

In 2000, Cañibano et al. published a literature review entitled “Accounting for Intangibles: A Literature Review”. This paper revisits the conclusions drawn in that paper. We also discuss the intervening developments in scholarly research, standard setting and practice over the past 20+ years to outline the future challenges for research into accounting for intangibles.

Design/methodology/approach

We conducted a literature review to identify past developments and link the findings to current accounting standard-setting developments to inform our view of the future.

Findings

Current intangibles accounting practices are conservative and unlikely to change. Accounting standard setters are more interested in how companies report and disclose the value of intangibles rather than changing how they are determined. Standard setters are also interested in accounting for new forms of digital assets and reporting economic, social, governance and sustainability issues and how these link to financial outcomes. The IFRS has released complementary sustainability accounting standards for disclosing value creation in response to the latter. Therefore, the topic of intangibles stretches beyond merely how intangibles create value but how they are also part of a firm’s overall risk and value creation profile.

Practical implications

There is much room academically, practically, and from a social perspective to influence the future of accounting for intangibles. Accounting standard setters and alternative standards, such as the Global Reporting Initiative (GRI) and European Union non-financial and sustainability reporting directives, are competing complementary initiatives.

Originality/value

Our results reveal a window of opportunity for accounting scholars to research and influence how intangibles and other non-financial and sustainability accounting will progress based on current developments.

Details

Journal of Accounting Literature, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0737-4607

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 MA vary…

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. 19 no. 4
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 20 March 2023

Brian A. Rutherford

This paper offers a way of revivifying classical accounting research in the form of a pragmatist neoclassical programme with a sound epistemological underpinning.

Abstract

Purpose

This paper offers a way of revivifying classical accounting research in the form of a pragmatist neoclassical programme with a sound epistemological underpinning.

Design/methodology/approach

The paper draws on a pragmatist perspective on financial accounting and accounting research springing from John Dewey's theory of inquiry.

Findings

Although a pragmatist underpinning does not entail specific methodological prescriptions, it can provide fruitful insights in research design. The paper discusses the structure and content of a research programme drawing on a pragmatist underpinning and sets out proposals for a practical research agenda. Although the agenda is shaped around the topic of identifiable intangibles, much of the paper has substantially wider relevance.

Research limitations/implications

The approach justifies a revival in scholarly research employing classical methods and directed at improving accounting methods and standards.

Practical implications

The approach would promote closer engagement between scholarly accounting and practitioners such as standard-setters, making some contribution to closing the widely acknowledged gap between research and practice.

Originality/value

The paper offers a neoclassical programme of research drawing considerably more extensively on pragmatist philosophy than did theorisation in the classical period.

Details

Journal of Applied Accounting Research, vol. 24 no. 5
Type: Research Article
ISSN: 0967-5426

Keywords

Article
Publication date: 20 October 2023

Stylianos Efstratios Vatis, Michail Nerantzidis, George Drogalas and Evangelos Chytis

The purpose of this study is to identify, recap and evaluate the state-of-the-art linkage between International Financial Reporting Standards (IFRS) and earnings management (EM).

Abstract

Purpose

The purpose of this study is to identify, recap and evaluate the state-of-the-art linkage between International Financial Reporting Standards (IFRS) and earnings management (EM).

Design/methodology/approach

A bibliometric analysis of 249 publications from the Web of Science (WoS) database was carried out, employing both the techniques of performance analysis and science mapping and the Bibliometrix R and VOSviewer tools.

Findings

The results of the performance analysis suggest that the publication and citation trends of the interplay of the IFRS and EM fields show an upward trend over time that most of the influential institutions emanate from the US and a significant percentage of articles published in this field emanate from high-quality journals. Science mapping via co-authorship analysis elucidates that more collaborative efforts among authors are needed in the future in this field. Bibliographic coupling analysis bifurcates the studies into six clusters and reveals the major themes and their evolution. Co-word analysis unfolds emerging trends that could be further explored, thus becoming possible future research avenues.

Originality/value

To the best of the authors' knowledge, no other study has attempted a bibliometric analysis of research on the relationship between IFRS and EM. This article fills this research gap and makes its contribution to the scientific community by presenting recent developments in this body of knowledge and suggesting future research avenues.

Details

Journal of Accounting Literature, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0737-4607

Keywords

Open Access
Article
Publication date: 5 December 2023

Simon Lundh, Karin Seger, Magnus Frostenson and Sven Helin

The purpose of this study is to identify the norms that underlie and condition the decisions made by preparers of financial reports.

Abstract

Purpose

The purpose of this study is to identify the norms that underlie and condition the decisions made by preparers of financial reports.

Design/methodology/approach

This interview-based study illustrates how financial report preparers engage in behaviors linked to the perception of recognition and measurement of internally generated intangible assets by important stakeholders. All of the companies included in the study adhere to International Financial Reporting Standards when creating their consolidated financial statements. The participants selected for the study are involved in accounting decisions related to research and development in accordance with International Accounting Standard (IAS) 38.

Findings

The authors identify the normative assumptions underlying the recognition and measurement of internally generated intangibles, which are based on concerns of consistency, credibility and reasonableness. The authors find that the normative basis for legitimacy in financial accounting is primarily related to cognitive legitimacy and is not of a moral or pragmatic nature.

Originality/value

The study reveals that recognition and measurement of internally generated intangibles in financial accounting relate to legitimacy. The authors identify specific norms that form the basis of this legitimacy, namely, consistency, credibility and reasonableness. These identified norms serve as constraints, mitigating the risk of judgment misuse within the IAS 38 framework for earnings management.

Details

Qualitative Research in Accounting & Management, vol. 21 no. 2
Type: Research Article
ISSN: 1176-6093

Keywords

Article
Publication date: 16 October 2023

Andrew Dymock, Peter Wells and Brett Govendir

This paper aims to consider the relevance of asset impairments when evaluating stewardship by management.

Abstract

Purpose

This paper aims to consider the relevance of asset impairments when evaluating stewardship by management.

Design/methodology/approach

This paper considers association of earnings (including and excluding asset impairments) with contemporaneous stock returns which are used as a measure of management performance and demonstration of stewardship.

Findings

Evidence is provided of earnings including asset impairments (an accounting measure of current measure firm performance) having a higher explanatory power for contemporaneous stock returns (an objective evaluation of current period firm performance) than earnings exclusive of asset impairments. Consistent with this, recognized asset impairments are significantly associated with contemporaneous stock returns. These results occur across firm years generally, as well as for firm years exhibiting indicators of impairment and firm years recognizing asset impairments.

Research limitations/implications

This paper adds to the literature providing evidence of asset impairments not being recognised on a timely basis. Additionally, challenges are identified in evaluating the relevance of accounting information for so-called growth firms.

Practical implications

These findings support continued recognition of asset impairments in the Statement of Profit or Loss if stewardship is accepted as an objective for financial reporting. It also suggests issues with the recognition of asset impairments that might be addressed by enhanced disclosure.

Originality/value

This paper is distinctive in that it considers the relevance of accounting information for evaluating stewardship, as distinct from decision-making. It also considers alternate measure of performance (earnings including and excluding asset impairments) for all firms rather than only those disclosing an alternate measure (i.e. a fair horse race)

Details

Pacific Accounting Review, vol. 35 no. 5
Type: Research Article
ISSN: 0114-0582

Keywords

Case study
Publication date: 23 November 2023

Shernaz Bodhanwala and Vandita Sanghvi

The case is written based on publicly available data from primary sources like the company’s annual reports and presentations and from secondary sources, as indicated in the…

Abstract

Research methodology

The case is written based on publicly available data from primary sources like the company’s annual reports and presentations and from secondary sources, as indicated in the references.

Case overview/synopsis

Barnes & Noble Inc. (B&N), one of the oldest and largest American retail booksellers founded in 1917, was facing a grim business situation underpinned by a fall in demand, a change in consumer preference and stiff competition. After almost a century of being in the business, B&N was experiencing a fall in market share and weak stock market performance. In 2019, the company was sold to Elliot Advisors – a hedge fund – for US$638m. With the appointment of new chief executive officer (CEO) James Daunt in August 2019, a man known for the turnaround of similar businesses, B&N expected its business’s revival and reorganization strategy to turn profitable. Its long-term strategy of beating competitors with its offerings’ sheer volume and low prices was no longer viable. The turmoil was compounded by top management crises with the repeated changes and ousting of several CEOs in a short span, alongside the COVID-19 pandemic and subsequent lockdowns in 2020 and 2021. Daunt was considering how to overcome the crisis and act fast to reposition the company and regain the loyalty of its customers. Was there more that the company could do to improve the company’s position and restore profitability?

Complexity academic level

The case can be used in strategic management and entrepreneurship classes at undergraduate and postgraduate levels. The case can be used in an investment analysis and management course to teach students the industry analysis technique using Porter’s five forces model.

Details

The CASE Journal, vol. ahead-of-print no. ahead-of-print
Type: Case Study
ISSN: 1544-9106

Keywords

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