Search results

The purpose of this study is to investigate the long-term performance of firms that early adopted Statement of Financial Accounting Standard 142 (SFAS 142).

In particular, the paper focuses on a relatively lengthy time frame after the standard became effective in 2002 and examines whether the firms which early adopted SFAS 142 exhibit different characteristics from their non-early adopting counterparts when comparing operating returns, stock returns and earnings quality over the same time period. Profit margin, return on assets and return on equity are used to measure operating returns; buy-and-hold return, Tobin’s Q and price-to-book ratio are used to measure stock returns; and abnormal accruals and accruals quality are used to measure earnings quality.

Based on a sample of 692 firm-year observations over five years between 2002 and 2006, the authors find that early adopters tend to exhibit lower operating performance (most noticeable when measuring profit margin and return on assets) and lower earnings quality following the early adoption of SFAS 142 than non-early adopters. However, little relation is found between post-adoption market returns and the choice to early adopt SFAS 142.

This study helps fill the gap in accounting literature by investigating the long-term performance of firms post adoption of SFAS 142. The empirical results may provide greater understanding of the firms choosing to early adopt SFAS 142, and offer additional insight to guide standard setters on similar accounting issues in the future.

This study’s research questions attempt to identify potential differences in operating and stock performance and earnings quality by comparing early adopters and non-early adopters of SFAS 142 over a five-year period between 2002 and 2006, which extends the research beyond the relatively short window covered by prior research, and also takes into consideration Statement of Financial Accounting Standard 141 (SFAS 141)-R “Business Combination”, issued in 2007, to supersede SFAS 141 of 2001.

The purpose of this paper is to investigate how fair value reporting and increased managerial discretion under the new goodwill accounting affect the asymmetric timeliness of earnings;, i.e. accounting conservatism.

Various empirical models are applied to a sample of 11,034 firms. To capture a cross‐sectional variation in asymmetric timeliness of earnings, Kahn and Watts' C_Score is adopted.

It is found that financial reporting for firms with purchased goodwill has become more conservative after the enactment of the new standard. However, once an increase in conservatism that is not attributable to new goodwill accounting is controlled for, it is found that accounting earnings for firms with purchased goodwill become less conservative.

The results should be interpreted with caution, because the effect of concurrent events other than the adoption of SFAS 142 on reported earnings is not perfectly controlled.

The results of this paper support Watts' assertion that new goodwill accounting impairs accounting earnings' ability to reflect the economic earnings in a timely manner, but these results should be interpreted with caution, as the main objective of goodwill accounting is not to improve accounting conservatism.

This paper makes a timely contribution to the debate of fair value accounting by focusing on the impact of SFAS 142 on the asymmetric timeliness of earnings. By employing all available firms with purchased goodwill balances rather than relying on firms that report impairment losses, our research design better captures the impact of SFAS 142 on financial reporting.

This paper seeks to examine whether companies are providing transparent financial disclosures in compiling with the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets”, and to determine whether the adequacy of these disclosures is impacted by firm size.

The authors conducted a random sample of companies that reported goodwill impairments for the first year of adoption of SFAS No. 142. The firms were then stratified into three groups according to asset size. Subsequent analysis consisted of assessing the financial transparency of companies' goodwill reporting practices in total and by firm size, utilizing an approach suggested in Adams.

The study's findings suggest that many companies are not willing to provide additional voluntary disclosures to improve financial transparency, despite having the necessary information easily accessible. It also found that compliance with the provisions of SFAS 142 was sporadic and unpredictable.

This study provides evidence that companies are not providing transparent financial information.

The paper aims to analyze the reasons for the unremarkable increase in value relevance of new impairment testing of goodwill following the introduction of new accounting standards SFAS 141 and 142.

After surveying main research about market reactions to announcements of goodwill write‐off before and after the introduction of the new SFAS the paper shows why the two‐step procedure of impairment testing risks undermining the very economic substance of the test.

The analysis shows the inadequacy of the impairment test to measure the destruction of wealth experienced by acquiring firms’ shareholders and to supply value‐relevant information owing to the lack of disclosure of information after the first stage of the test. It also shows the consequences of management's discretionary power in setting forth projections.

The paper lays the groundwork for interpreting the empirical evidence on the limited information content of goodwill write‐offs.

This paper investigates the debate as to whether employee share options (ESOs) should be expensed in an entity’s financial statements as required by the IASB’s IFRS 2 – Share‐based payment (2004). The paper presents arguments for and against expensing ESOs, demonstrating that compensation of employees via ESOs is a bona fide expense in terms of the recognition and measurement criteria of the IASB Framework. It concludes that, the substance of an ESO transaction is that the entity pays an employee for his services, albeit with a different financial instrument. Consequently, the accounting treatment of such compensation should be the same as for any other payment of services of an employee.

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.

To examine whether the provisions of SFAS No. 142 allow for the earnings management technique termed “big bath” and whether firm size plays a role in earnings management.

A random selection of companies with December 31, 2002 fiscal year‐ends yielded 120 firms that reported goodwill impairments in 2002 and 82 firms that did not. The firms are then stratified into two groups. Analysis consists of measuring the magnitude of the 2002 goodwill impairment loss, comparing financial metrics of impaired and non‐impaired firms, and calculating the proportion of firms with negative versus positive earnings.

The results suggest that SFAS No. 142 adoption allowed companies to engage in earnings management. Findings indicate that small firms experienced a significantly greater negative impact and were much more likely than large firms to take big bath charges.

This study provides evidence on the use of newly issued accounting standards to manage earnings.

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.

The purpose of this paper is to highlight the salient features of the new accounting standards on impairment of goodwill and their practical applications.

To ascertain the research gap, the existing literatures on the subject were critically reviewed and analysed. Objectives were set to identify the significant indicators of goodwill impairment. The areas covered include business combination and goodwill impairment, effects of new standards and current practices of goodwill impairment in the UK, etc.

Goodwill is a unique intangible asset in that its cost cannot be directly associated with any specifically identifiable item and is not separable from the company as a whole. Well planned strategies for preventing goodwill impairment with long‐term perspective would contribute fruitful results.

This study provides awareness to the readers about the strategies in dealing with goodwill impairment.

The provisions of Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long‐lived Assets, have raised many implementation issues for entities adhering to its increased requirements to recognize and measure the costs associated with the impairment of assets. After outlining these new requirements and some general implementation issues, the paper discusses how members of key groups view the new standard, using the responses to a mail survey. It was found that user‐oriented groups expressed significantly different viewpoints than did preparer‐oriented groups. The survey results also found many respondents stating that the new standard provides improved guidance for many complex situations, while others do not believe that the standard is cost justified.