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Accounting Treatment of Goodwill: Yesterday, Today and Tomorrow: Problems and Prospects in the International Perspective
Abstract
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.
... Although many scholars have studied goodwill for over a century (Baboukardos & Rimmel, 2014;Cooper, 2007), consensus on both its definition and how it can be treated in accounting remains lacking (Seetharaman et al., 2004), and the debate remains open in both the academic literature and professional practice (Beretta Zanoni, 2009;Bloom, 2009;Wen and Moherle, 2016). ...
... These contributions are useful in that they inform the debate on accounting for goodwill where studies highlight several schools of thought (Seetharaman et al., 2004;Bloom, 2009;Wen and Moherle, 2016). Some scholars suggest that goodwill could be immediately recognized when purchased (Spacek, 1964). ...
... IASB has engaged in continuous attempts to improve goodwill accounting and reporting (Eloff and de Villiers, 2015;Seetharaman et al., 2004). Among their rules, emphasis has been placed on both the ability to recognize goodwill in accounts only if a business combination occurs (and, therefore, not when internally created) and the impairment of the asset (Seetharaman et al., 2006). ...
Purpose
In the process of harmonizing International Accounting Standards (IAS/IFRS), scholars and standard setters still need to overcome unresolved issues related to both goodwill duration and accounting recognition. This paper aims to compare the academic background on goodwill with current IAS. Specifically, the goal is to criticize existing practices and advance a revision of accounting for goodwill.
Design/methodology/approach
The paper is based on a review of the relevant literature on notions, theories and accounting approaches on goodwill and on an investigation of IAS/IFRS on accounting for goodwill. By critically integrating literature and practices, the authors provide implications for a revision of IAS.
Findings
The findings show the two main internally coherent theoretical approaches and the incoherence in current goodwill accounting standards. The paper contributes to the debate on accounting for goodwill by suggesting new conceptual arguments in relation to the controversies related to its accounting treatment.
Practical implications
The findings offer insights and guidelines that can help standard setters revise current accounting standards. Inter alia, standards setters should revisit issues related to goodwill evaluation and record limitations in future debates to find better solutions.
Originality/value
This study shows the incoherence of current accounting standards. Furthermore, the findings contradict the general opinion that, in current IAS, goodwill can be recognized only if acquired in business combinations and not if internally generated. Thereby, the authors suggest to shift the international accounting standards board focus from the preference between amortization and impairment to the coherence of goodwill accounting approaches.
... Unsurprisingly, the subsequent treatment of goodwill has been identified as one of the five most challenging requirements of the IFRS 3 transition (Hoogendoorn 2006). This forms part of the long-standing debate on an appropriate subsequent measurement of goodwill (Bepari and Mollik 2017;Bugeja and Gallery 2006;Hamberg and Beisland 2014;Oliveira et al. 2010;Seetharaman, Balachandran and Saravanan 2004;Shahwan 2004;Wines et al. 2007). ...
... Subsequently, most accounting frameworks agreed that goodwill should be recognised as an asset (Dahmash et al. 2009;Godfrey and Koh, 2001;Jennings et al. 1996) and that 6 its value does deplete as time progresses (Seetharaman et al. 2004). As a result, goodwill was generally amortised over a prescribed period of time or was limited to a specific period (Seetharaman et al. 2004). ...
... Subsequently, most accounting frameworks agreed that goodwill should be recognised as an asset (Dahmash et al. 2009;Godfrey and Koh, 2001;Jennings et al. 1996) and that 6 its value does deplete as time progresses (Seetharaman et al. 2004). As a result, goodwill was generally amortised over a prescribed period of time or was limited to a specific period (Seetharaman et al. 2004). This led to many studies focusing on the value relevance of goodwill amortisation (European Financial Advisory Group 2014 ;Hall 1993;Ravlic 2003;Waxman 2001;Wines et al. 2007). ...
The purpose of this study was to determine whether goodwill, which is measured in accordance with International Financial Reporting Standard 3 (IFRS 3), is value relevant at acquisition and as time progresses, for a period of two years after acquisition. Using the Ohlson model, 126 JSE firm-year observations were tested. It was subsequently found that goodwill was not value relevant at acquisition date but did become value relevant as time progressed. The possible reasons for goodwill not being value relevant at acquisition are attributed to the manner in which IFRS 3 requires goodwill to be measured, the allowance of provisional values under IFRS 3, and the complexities associated with complying with IFRS 3. Goodwill being value relevant as time progresses is attributed to the subsequent measurement requirements of IFRS 3, in particular the annual impairment testing requirement as opposed to the previous amortisation requirements. This study was conducted in a South African context where limited studies on goodwill have taken place. The results are deemed to be useful to investors and standard setters as they hold implications for goodwill accounting practice and changes to goodwill accounting standards.
... In light of this, the treatment of goodwill is considered as one of the most controversial issues in accounting, due to the diversity of its practices. Moreover, the laissez-faire strategy of solving goodwill dilemma provides maneuvering room for companies in their selection of favorable treatments (Seetharaman, Balachandran, & Saravanan, 2004). ...
... This diversity results in the many definition of goodwill being published. A few of these definitions will be highlighted, quoted from Seetharaman et al.(2004). ...
... There are three different ways to deal with the purchase goodwill based on Seetharaman et al.(2004), which are: ...
This paper has a brief explanation about the Goodwill history and treatment in Malaysia
... Before the standards IFRS 3, IAS 38 and IAS 36, and the statements SFAS 141 and 142, goodwill was treated different in local Generally Accepted Accounting Principles (GAAP) across countries. Seetharaman, Balachandran, and Saravanan (2004) declare that it is because goodwill is the most controversial item in financial statements. ...
... (Jerman and Manzin, 2008) It is also considered that the implementation is different across countries, due to the historical treatments of goodwill accounting, cultural differences and that controversy still remains. (Seetharaman et al. 2004) ...
... One effect that is considered to have a great impact on the impairment of goodwill is the managers' incentives. (Wines, Dagwell andWindsor 2007, Ball 2006) We consider that this effect is partly captured through our dummy variables since it is up to the enforcement of the specific country to enforce that the accounting rules are implemented properly in the financial statements. ...
... Goodwill beskrivs utifrån vad andra företag är villiga att betala för ett företag utöver värdet på de aktuella nettotillgångarna (Seetharaman et al., 2006). Det finns enligt Seetharaman et al., (2004) tre olika synsätt för hur goodwill ska redovisas. Första synsättet är att företaget skriver av all goodwill direkt efter köpet mot eget kapital. ...
... Detta värde kan bero på immateriella tillgångar såsom varumärke, arbetskraft och liknande. Seetharaman et al., (2004) nämner en definition som uppkom på 1990-talet med en annan infallsvinkel. Definitionen på goodwill är enligt denna synvinkel skillnaden mellan inköpspriset och marknadsvärdet på ett företags nettotillgångar. ...
... Detta eftersom det annars kan vara missvisande att jämföra olika företag där det ena har köpt goodwill externt och det andra företaget har upparbetat det internt men inte kan få utnyttja det som en tillgång (Dunse et al., 2004). Seetharaman et al., (2004) menar att internt upparbetad goodwill kommer bli ännu mer diskuterat i framtiden eftersom företag blir allt mer internetbaserade och därmed kommer till största delen bestå utav immateriella tillgångar. ...
... The second school of thought, contrary to this, advocated for neither the write-off nor the accounting for depreciation of goodwill in the operating expense account of the entity unless there was sufficient and strong evidence to support the decrease in asset -similar to an indicator of impairment. The last encompassed the systematic amortisation of goodwill (Seetharaman, Balachandran & Saravanan 2004). ...
... Techniques to measure goodwill impairment losses have become more sophisticated by leveraging cash flow analyses, market-based approaches and quantitative risk assessments, which provide more accurate and timely impairment decisions (Martínez et al. 2023;Seetharaman et al. 2004). Advanced measurement methodologies better reflect the current economic landscape and allow for more informed strategic decisions for organisations. ...
Orientation: By taking stock of goodwill accounting literature, the article identifies key themes and highlights the lack of innovation in goodwill and intangibles’ accounting evolution.Research purpose: This article suggests pure grounded theory research is required to develop a novel perspective on goodwill accounting.Motivation for the study: Little progress has been made to overcome the dated issues related to goodwill impairment necessitating a genuinely fresh approach.Research approach/design and method: A search was performed on the Scopus Database and all sources containing a combination of ‘goodwill’ and ‘impairment’, ‘amortisation’ or ‘depreciation’ in the title, abstract or keywords were extracted. A total of 231 sources from 1990 to 2022 are analysed. These are coded with the support of a content analysis and a bibliometric analysis.Main findings: This research identifies the dominance of positivist quantitative research and financial economics as a key issue that may be holding back progress on the subsequent treatment of goodwill. The research iterates three core issues, namely: (1) that the impairment-only approach allows too much managerial discretion, (2) an inability to reasonably estimate the useful life of goodwill deters many from supporting goodwill amortisation and (3) sometimes goodwill may be a wasting asset while others may genuinely have an indefinite useful life.Practical/managerial implications: This research may be relevant for standard setters when considering goodwill accounting methods.Contribution/value-add: The research provides insights into existing literature and highlights areas for future accounting research.
... Por fim, a abordagem da baixa direta (ou abate imediato) do goodwill foi também defendida por alguns pesquisadores. Seetharaman et al. (2004) destacam algumas justificativas defendidas nesse método de contabilização posterior, tais como as dificuldades mensuráveis -já que, ao contrário de outros ativos, estes não podem ser vendidos separadamente -, e o fato de ser esperado que o goodwill relacionado ao negócio desapareça com o tempo. Gray (1988) e Ma e Hopkins (1988) favorecem a baixa imediata por acreditarem que, visto que o goodwill gerado internamente e adquirido representa benefícios com características de risco semelhantes, deve ser contabilizado da mesma forma para que o balanço patrimonial não fique distorcido. ...
... Em contrapartida, a baixa direta apresenta limitações, dentre as quais o forte impacto no resultado da adquirente no momento da aquisição e a distorção na posição de alavancagem das empresas (Seetharaman et al., 2004). ...
Objetivo: Este artigo tem como objetivo realizar uma análise comparativa entre as diferentes formas de redução do valor contábil do goodwill, à luz do Iasb Discussion Paper/2020/1. Método: A pesquisa está configurada metodologicamente como um ensaio teórico e destaca a visão da literatura e normatização contábil sobre o assunto. Resultados e contribuições: Com base nas reivindicações dos stakeholders ao Iasb, foi identificado que o teste de impairment, método atual de redução do goodwill, possui diversas limitações, tais como alto custo, reconhecimento tardio e efeito shielding. A reflexão desenvolvida propõe que a permanência desse teste como única forma de contabilização posterior do ágio implica uma redução na qualidade da informação contábil, sendo, assim, recomendadas outras formas de redução para representar mais fidedignamente os valores constantes nos demonstrativos financeiros. Desse modo, diante da recente abertura proporcionada pelo Iasb para o assunto, este artigo possui relevância ao abordar, tempestivamente, a discussão alusiva ao Discussion Paper/2020/1, de quais são as possíveis e mais adequadas formas de redução do valor contábil do goodwill, a fim de representar, de maneira mais relevante e fidedigna, o patrimônio das empresas.
... Goodwill has been the most controversial issue in many countries all over the world (Seetharaman et al., 2004) . One of the early definitions of goodwill can be found in the "A Counting House Dictionary", where goodwill is defined as a willingness of an owner of a business to relinquish the expectation of the business by transferring it for a consolidation to someone else. ...
... For accounting perspective, some treatments of goodwill have been conducted by reporting firms, i.e. requirements to write off (eliminate) completely against an account in shareholder's equity, reserve or retained earnings, requirements that goodwill be capitalised and not written off at all unless no strong evidence, requirements that goodwill be capitalised and amortised systematically over a reasonable period of time, requirements that goodwill be capitalised and impaired (Seetharaman et al., 2004;Carlin & Finch, 2008). ...
In calculating recoverable amount of cash generating units (CGUs) under the implementation of value in use approach, discount rate selection represents a central point in deciding the magnitude of impairment charges under Hong Kong Financial Reporting Standards (HKFRSs). The selection of discretion discount rate in the discounted cash flow model (DCF) could be used opportunistically to misstate impairment losses for the benefit of financial statement preparers and causes the transparency of the financial reports. This study is conducted to provide evidence of opportunistic behaviours relating on goodwill impairment by reporting statement preparers. By comparing independently estimated risk adjusted discount rates and those subjectively presented by large listed Hong Kong firms in the first year adoption of HKFRSs, the results showed that discount rates were presented in disarray, in which discount rates were more overstated than understated in comparison with scientifically generated ones.
... 1. Friendly M&As, where the acquirer and the acquired company achieve a common agreement on this specific action, there is a common consensus, and no official reaction on the completion of the process and 2. Hostile M&As or takeovers, where the target company express its disagreement to the M&A action, and attempt to defend itself through some precise actions from the eventual acquirer company. (Seetharaman et al., 2008;Iatridis and Rouvolis, 2010). The relevant IAS is the IFRS 3 -Business Combinations, which is designed to determine the accounting when an acquirer obtains control of a business (M&As). ...
... Therefore, the examination of accounting performance and the financial statements of a firm for the merger decision is a better and safer path (Healy et al., 1992;Chatterjee and Meeks, 1996;Ramaswamy and Waegelein, 2003;Marfo et al., 2013;Halimahton et al., 2014;Muhammad and Zahid, 2014;Oruc et al., 2014). Thus, the sample processing and examination in the study were Accounting data analysis with financial statements and ratios provide useful information regarding companies" merger decisions in general and more specifically on taxation issues (Auerbach and Reishus, 1987a;Landsman and Shackelford, 1995;Chatterjee and Meeks, 1996;Seetharaman et al., 2008;Becker and Fuest, 2011;Belz et al., 2013). All the ratios that were used are presented and analyzed in Table 1. ...
The study examines the merger effects on the accounting performance of Greek firms, in parallel with their taxation impact, during the period of economic crisis in Greece. The study analyses twelve accounting measures from financial statements and financial ratios of a sample of Greek listed firms in the Athens Exchange that carried out one merger in the period from 2010 to 2015 as acquirers. The results revealed that none of the twelve examined accounting measures have changed significantly due to the merger event, one year after the merger transaction. Different results are proposed regarding the impact of the type of industry, as the findings of the study indicate a better accounting performance for the constructions firms than the others from our sample. Furthermore, the study investigates the impact of the new Greek Income Tax Code (GITC) (Law 4172/2013) that refers to the corporate restructuring in Greece. There is evidence that there is some effect from the new GITC and it provides further opportunities for capital gains, not subject to tax from mergers, during the period of the economic crisis in Greece.
Key words: Mergers, taxation, financial statements, financial ratios, Greece.
... tion of standards SFAS No.121 (issued in 1995) and IAS 36 (issued in 1998), many questions related to the practical application of these standards are relevant and are still up for debate. Monitoring the trends that have been taking place in the regulation of the application, in particular IAS 36, the authors can agree with the conclusion drawn by Seetharaman et al. in 2004. In their research stated idea that " nevertheless there are accounting standards stated and various explanations performed by international professional bodies the common treatment for goodwill has not and will not be defined in the nearest future " (Seetharaman, Balachandran, Saravanan, 2004). This conclusion can be attributed not only ...
... Monitoring the trends that have been taking place in the regulation of the application, in particular IAS 36, the authors can agree with the conclusion drawn by Seetharaman et al. in 2004. In their research stated idea that " nevertheless there are accounting standards stated and various explanations performed by international professional bodies the common treatment for goodwill has not and will not be defined in the nearest future " (Seetharaman, Balachandran, Saravanan, 2004). This conclusion can be attributed not only to the goodwill, but also to other categories of long-lived assets, which actually could be named as a "black box", taking into account the practical situation in Latvia in the field of accounting. ...
... tion of standards SFAS No.121 (issued in 1995) and IAS 36 (issued in 1998), many questions related to the practical application of these standards are relevant and are still up for debate. Monitoring the trends that have been taking place in the regulation of the application, in particular IAS 36, the authors can agree with the conclusion drawn by Seetharaman et al. in 2004. In their research stated idea that " nevertheless there are accounting standards stated and various explanations performed by international professional bodies the common treatment for goodwill has not and will not be defined in the nearest future " (Seetharaman, Balachandran, Saravanan, 2004). This conclusion can be attributed not only ...
... Monitoring the trends that have been taking place in the regulation of the application, in particular IAS 36, the authors can agree with the conclusion drawn by Seetharaman et al. in 2004. In their research stated idea that " nevertheless there are accounting standards stated and various explanations performed by international professional bodies the common treatment for goodwill has not and will not be defined in the nearest future " (Seetharaman, Balachandran, Saravanan, 2004). This conclusion can be attributed not only to the goodwill, but also to other categories of long-lived assets, which actually could be named as a "black box", taking into account the practical situation in Latvia in the field of accounting. ...
... tion of standards SFAS No.121 (issued in 1995) and IAS 36 (issued in 1998), many questions related to the practical application of these standards are relevant and are still up for debate. Monitoring the trends that have been taking place in the regulation of the application, in particular IAS 36, the authors can agree with the conclusion drawn by Seetharaman et al. in 2004. In their research stated idea that " nevertheless there are accounting standards stated and various explanations performed by international professional bodies the common treatment for goodwill has not and will not be defined in the nearest future " (Seetharaman, Balachandran, Saravanan, 2004). This conclusion can be attributed not only ...
... Monitoring the trends that have been taking place in the regulation of the application, in particular IAS 36, the authors can agree with the conclusion drawn by Seetharaman et al. in 2004. In their research stated idea that " nevertheless there are accounting standards stated and various explanations performed by international professional bodies the common treatment for goodwill has not and will not be defined in the nearest future " (Seetharaman, Balachandran, Saravanan, 2004). This conclusion can be attributed not only to the goodwill, but also to other categories of long-lived assets, which actually could be named as a "black box", taking into account the practical situation in Latvia in the field of accounting. ...
... Goodwillhanteringen har debatterats flitigt genom åren, ända sedan 1890. Ändå finns idag ingen idealisk lösning på goodwillhanteringen. (Seetharaman, Balachandran & Saravanan 2004) Tidigare har goodwill enligt Redovisningsrådets svenska redovisningsrekommendationer skrivits av enligt plan över beräknad nyttjandeperiod men sedan 2005 ska börsnoterade bolag i Sverige följa internationell redovisningsstandard utfärdad av IASB (International Accounting Standards Board). IASB anser att goodwill har en obegränsad nyttjandeperiod vilket i det här sammanhanget innebär att det är omöjligt att bedöma hur lång tid framöver som ett positivt kassaflöde kommer att genereras. ...
... Internt upparbetad goodwill utvecklas istället när ett företag växer och bygger relationer med leverantörer, kunder och anställda med flera. (Seetharaman, Balachandran & Saravanan 2004) Inom redovisning finns ingen närmare definition av goodwill än att det är en restpost som uppkommer vid företagsförvärv (Artsberg 2005 2.4 Redovisning av goodwill idag IASB har haft syftet att minska posten goodwill i balansräkningen på grund av svårigheterna med värderingen. Detta genom att motivera företag att specificera vilka identifierbara immateriella tillgångar som tidigare kunde innefattas i goodwill, såsom varumärken, patent och licenser. ...
... The current issue and full text archive of this journal is available on Emerald Insight at: https://www.emerald.com/insight/0967-5426.htm from the same period (Zambon et al., 2020). Over the last century or so, accounting for intangibles has grown more sophisticated, with a number of substantial and varied changes in practice, the thinking behind which derived largely from classical theorising (Garcia et al., 2018;Seetharaman et al., 2004;Wen and Moehrle, 2016). Yet an enduring resolution of the issue has proved elusive and seven EU and five Organisation for Economic Co-operation and Development reports on the subject have been issued in the last two decades, most calling for urgent and far-reaching action (Zambon et al., 2020). ...
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.
... Goodwill is a soft intangible asset, based on notional property values, and is essentially an accounting construct referring to the potential re-saleability of an asset. It inflates the value of assets, but its actual value is difficult to establish, and often deflates in the event of bankruptcy (Seetharaman, Balachandran, and Saravanan 2004). The holding company of Les Petits Chaperons Rouges, Eurazeo, is based in France and is a private equity business. ...
... When a company acquires another company and the consideration exceeds the value of the acquired company's identifiable net assets, the residual is termed goodwill. Over the years goodwill has been ascribed different meanings, from not being an asset of any value, being the value of the acquired company's reputation, being the value of abnormal returns − although this is more of a rationalization of the method of calculation than a standalone explanation − to being synergies from asset interaction, personnel and know-how, i. e. resources not recognisable as separate intangible assets (Gynther, 1969;Ma & Hopkins, 1988;Sandell & Svensson, 2016;Seetharaman, Balachandran & Saravanan, 2004). Today goodwill is formally defined as: ...
This paper argues that the corporate annual report is not only a document comprising retrospective accounts of financial position and performance, but also a text that points to the future by means of presenting dreams, aspirations and fantasies. However, these dreams are not to be seen as irrational deviations from the rationalistically oriented discourse of accounting. Quite to the contrary, the three corporate dreams identified in this study – the colonial dream, the evolutionary dream and the efficiency dream – are part of the ongoing self-narration of the company, in which it tries to display an allegiance to a set of appropriate aspirations that are considered legitimate in contemporary global capitalism. Drawing upon ideas from narrative theory, annual reports from 2005 to 2010 collected from NASDAQ OMX Stockholm have been analyzed with the purpose of understanding how corporate dreams are used in financial communication. These corporate dreams contribute, the paper argues, to the construction of legitimacy and trust.
... The issue of accounting for goodwill has been debated in many countries, with opinion changing several times as reflected in past reissues of exposure drafts and accounting standards on goodwill by various standard setting bodies. 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 (Seetharaman et al, 2004). An unsettled position or a laissez-faire position by standard setters on goodwill accounting over the past has encouraged companies' management to select the treatments that give them the most desired financial results. ...
This study contributes to the issue of accounting for goodwill by examining the impact of changing from the Australian Generally Accepted Accounting Principles (AGAAP) to Australian International Financial Reporting Standards (AIFRS) on goodwill, 3 years (2002 to 2004) before and 3 years (2006 to 2008) after AIFRS adoption. The sample is drawn from top 200 companies listed on the Australian Stock Exchange (ASX). This study applies multiple regressions. The dependent variable is the closing share price 3 months after the balance sheet date. The independent variables consist of earnings per share, book value per share, goodwill in the balance sheet, goodwill in the income statement (goodwill amortisation and goodwill impairment) and goodwill acquisition. The findings indicate that goodwill accounted for in the income statement and balance sheet do not provide increased explanatory power of market value under AIFRS compared to AGAAP. Moreover, the goodwill in the income statement does not show value relevance in year 2007, but became significant in year 2008 during the global financial crisis (GFC). Also, the age of goodwill recorded in the balance sheet does not affect the value relevance of earnings and book value in the post-adoption period. This study contributes new evidence on accounting for goodwill under pre and post-IFRS accounting regimes in Australia. This is also the first study to examine the separate effects of goodwill accounting on earnings and net assets, with special attention given to the period before and during the GFC in capital markets.
... The analysis of the relations between goodwill and value creation is a difficult task, not only because of its complexity, abstractness and general inclusiveness (Schuetze, 2004), but also the difficulty of attributing the specific contribution of every single factor of Goodwill to the enterprise value as a whole (Ferri, 2006;Henning, 2000;Higson, 1998;Ramanna and Watts, 2011;Šapkauskienė and Leitonienė, 2014;Seetharaman et al., 2004). ...
... As the gap has increased markedly over the past half century, Tobin's Nobel-winning work drew attention to this discrepancy (Lindenberg & Ross, 1981). Accounting's approach has been to reconcile the matter by adding in a balancing item as the organization's " goodwill " (Seetharaman, Balachandran, & Saravanan, 2004). An issue associated with goodwill as a proxy is that it tends to aggregate the value of a wide variety of interactions between the organization and its environment. ...
This article examines the issue of how organizations value human capital—are they treated as the intellectual resource within the asset side of the ledger, or are they an expense that drains the company of cash and risks their competitive advantage? The article will focus on the idea that the value of the human capital assets should be measure and considered part of the organizations market value. The exploration of knowledge-based economies has strengthened the argument for setting value to those producing creative and innovative processes within the organization. Central to this article is the belief that human capital is an accountable asset that must be valued on corporate financial statements as Infosys has adopted since 2008. While some would argue that financial value cannot be attached to labor, this argument does not seem to be supported in the knowledge-based economy. If an organization's most valuable asset is its people, then the argument must be broached that accounting standards (such as the Financial Accounting Standards Board [FASB] and generally accepted accounting principles [GAAP]) should keep current with the 21st century. If a true comparison of organizations takes place, can that comparison ignore its human capital?
... Many companies mention patents and other forms of protected knowledge. Also prepaid expenses, pension liabilities, brands, goodwill reputation and a plethora of other costs are labeled as intangible (Seetharaman et al., 2004). Intellectual property rights, trademarks or information technologies, are intangible resources intangibles such as i.e. intangibles that can be measured at any time in a company due to their static nature; the concept of resources is seen by some as being wider than assets, whereas others state that it is the other way round; the term intangible resources is suggested as an overall term (Hall, 1992) July, 2013 ...
Structural capital is a strategic asset which is comprised of non human assets such as systems and programs, research and development and intellectual property rights these sub variables helps the organization to achieve its goals and objectives hence improved Business Performance. There is no doubt structural capital plays a crucial role in the current ever-challenging and aggressive business environment, particularly in knowledge-intensive organizations such as pharmaceutical industry. The organizations that aspire to be successful and competitive need to demand and find better ways to improve their business performance by utilizing their structural capital. This study sought to establish the relationship between structural capital and business performance of pharmaceutical firms in Kenya. Three research questions were used to test the relationship of the components of structural capital with the Business performance of the pharmaceutical companies in Kenya. Data was collected from 19 pharmaceutical firms. Pearson correlation and regression were used to test the relationship and significance. The findings indicated that the three dimensions of structural capital that is systems and programs, research and development, intellectual property rights have positive and significance relationship with business performance of pharmaceutical firms'. However research and development, systems and programs were the most significant variables. Therefore, accounting for structural capital is essential for the improved business performance of pharmaceutical firms.
... Pharmaceutical firms have often considered Intellectual capital accounting when defining strategies, consequently more specific Intellectual capital information needs to be communicated in the annual reports (Aboody & Lev, 2002). Guidelines on Intellectual Capital accounting reporting benefit Pharmaceutical firms' managers, Investors and decision makers (Seetharaman et al, 2004) Conventional financial statements treat human resource investments as expenditures. Consequently, their income statement projects expenditures to acquire place and train human resources as expenses during the current year rather than capitalizing and amortizing them over their expected service life. ...
Today numerous organizations recognize the worth and importance of intellectual capital accounting. There is a no doubt intellectual capital accounting play a crucial role in the current ever-challenging and aggressive business environment, particularly in knowledge-intensive organizations such as pharmaceutical industry. The organizations that aspire to be successful and competitive need to demand and find better ways to improve their business performance by utilizing their intellectual capital. This study attempted to find the relationship of the components of intellectual capital accounting with the business performance of pharmaceutical companies in Kenya. Three hypotheses tested the relationship of the components of intellectual capital accounting with the business performance of the pharmaceutical companies in Kenya, and Pearson correlation was used for this purpose. The findings show that intellectual capital accounting has positive relationship with business performance and all three research hypotheses were supported.
... Pharmaceutical firms have often considered Intellectual capital accounting when defining strategies, consequently more specific Intellectual capital information needs to be communicated in the annual reports (Aboody & Lev, 2002). Guidelines on Intellectual Capital accounting reporting benefit Pharmaceutical firms' managers, Investors and decision makers (Seetharaman et al, 2004) Conventional financial statements treat human resource investments as expenditures. Consequently, their income statement projects expenditures to acquire place and train human resources as expenses during the current year rather than capitalizing and amortizing them over their expected service life. ...
... Pharmaceutical firms have often considered Intellectual capital accounting when defining strategies, consequently more specific Intellectual capital information needs to be communicated in the annual reports (Aboody & Lev, 2002). Guidelines on Intellectual Capital accounting reporting benefit Pharmaceutical firms' managers, Investors and decision makers (Seetharaman et al, 2004) Conventional financial statements treat human resource investments as expenditures. Consequently, their income statement projects expenditures to acquire place and train human resources as expenses during the current year rather than capitalizing and amortizing them over their expected service life. ...
... These authors consider that accounting for goodwill requires a high degree of interpretation and judgement, and a high number of estimates, both on initial recognition, upon registration of the business combination and in subsequent periods through the impairment tests. As pointed out by Seetharaman et al. (2004), the accounting method for goodwill is very flexible, leading them to question the validity of this flexibility, particularly in terms of attaining comparability of financial statements. The consequences are those suggested by Ji (2013) in a study about the timing of goodwill impairment decisions in the Australian context during the period 2007 to 2009: a substantial number of firms did not impair goodwill as required by the standards. ...
In this study, we investigate the magnitude of goodwill recognised in business combinations during the years 2005 to 2009 by the Portuguese companies listed on Euronext Lisbon, and characterise the amount of the other intangible assets recognised separately from goodwill. We also analyse the level of compliance of those companies with the main disclosure requirements of International Financial Reporting Standard (IFRS) 3 – Business Combinations. Our study, which involves the analysis of 197 business combinations, reveals that the amounts of goodwill continue to be highly material, while conversely, the value of identifiable intangible assets in those acquisitions is very low. The results suggest that Portuguese companies do not undertake sufficient efforts to individually identify and disclose intangibles acquired in business combinations. This fact is reinforced by the reduced level of compliance with the disclosures required by IFRS 3, particularly the factors that contribute to the recognition of goodwill. Our findings provide feedback to standard setters in an effort to improve practice in the application of IFRS 3. Moreover, they reinforce their recent concerns regarding the post-implementation review of business combinations, as well as the ongoing project of the IASB, whose objective is to improve disclosures in existing standards.
... This work contributes to the literature by adding a new strategic perspective on the analysis and interpretation of the internally generated goodwill. Traditionally, goodwill analysis is traced to accounting and financial literature (Zhang Mei, 2013;Schultze & Weiler, 2010;Vance, 2010;Seetharaman et al. 2004Seetharaman et al. , 2006 and it is focused on the analysis of goodwill accounting process and impairment and on its impacts on financial performance. In this paper, without deny the relevance of its accounting and financial roots, we offer a partially different perspective of analysis focusing on the relationship that internally generated goodwill has with the competitive position of the firm. ...
The purpose of this paper is to suggest a method to open the internally generate goodwill “black box” and to give an interpretation of its competitive meaning. The study takes a “breaking down” approach that, starting from the goodwill value proceeds through a reduction process that traces the internally generated goodwill to the competitive position of the firm, finding a link between the goodwill value and the competitive phenomena related to it. Through the process of goodwill breakdown the paper contributes to shed light on the process of goodwill creation giving a competitive interpretation of its economic meaning. Without deny the relevance of the accounting and financial literature, the paper offers a partially different and new perspective of goodwill analysis focusing on the relationship that internally generated goodwill has with the competitive position of the firm.
Organizations that aspire to be successful and competitive need to demand and find better ways to improve their business performance by utilizing their systems and programs as a construct for structural capital which comprises of non-human assets. Systems and programs are mechanisms that firms have put in place in order to execute their organizations objectives. They include succession management programs, recruitment programs, and reward systems among others. Systems and programs play a crucial role in the current ever-challenging and aggressive business environment, particularly in knowledge-intensive organizations such as pharmaceutical industry. This study sought to establish the relationship between systems and programs for business performance of pharmaceutical firms in Nairobi County. Systems and programs research question was used to test the relationship between business performances of the pharmaceutical companies in Nairobi County. Descriptive research design was used for the study. Data was collected from 19 pharmaceutical firms using structured questionnaires. Purposive sampling was used that targeted human resource managers and in their absence, their deputies were consulted. Pearson bivariate correlation and regression analysis were used to test the relationship and significance of the variables. The findings indicated that systems and programs as a construct for structural capital had positive and significance relationship with business performance of pharmaceutical firms’. The study concludes that succession management programs, recruitment programs and reward systems are critical to the success of the business and recommends that, the pharmaceutical firms should create a supportive culture that helps employees to produce new ideas and build systems that work. The recruitment programs should be comprehensive and dedicated to hire the best candidates available who can work as a team and influence Business Performance.
In industrial economy, production facilities, physical location, and efficient manufacturing processes were the vital
resources for a firm. The post-war booms created sellers’ market in most of the developed countries. In such a world,
traditional cost-focused reporting methods were able to provide an adequate picture of firm performance. However,
global trade has gradually changed this towards buyers’ markets. Consumers are better informed and more demanding.
This leads to increasing innovation speed and decreasing product life cycles. Differentiation and innovation become
critical and capabilities and assets such as research and development (R&D), creativity, brand image, patents. This
means that traditional cost focused reporting tools cannot provide the adequate information of firm performance.
Goodwill is defined as an intangible asset that represents assets, which are not separately identifiable. Goodwill forms an essential part in the accounting of a business concern. The treatment of goodwill forms a core part in the partnership accounting as well as in corporate accounting. Valuation of goodwill is done in case of admission, retirement, death and dissolution of a partner to remove the future conflicts among the partners. Similarly, goodwill is also valued in the case of amalgamation, absorption and reconstruction of a company. In spite of this, as per Accounting Standard 26 and Indian Accounting Standard 38 (Converged International Financial Reporting Standards), internally generated goodwill is not recorded in the books as it does not meet the recognition criteria. The present paper attempts to draw attention towards the issues relating to the recording of goodwill in the books. The authors have suggested their point of view for the recording of internally generated goodwill. The paper will also help the readers in acquiring an in-depth understanding of the various methods of valuation of goodwill.
Keywords: Goodwill, Intangible Asset, Internally Generated Goodwill, Methods of Valuation of Goodwill, Recognition Criteria.
Purpose
The Journal of Intellectual Capital (JIC) celebrated its 20th anniversary in 2020. Therefore, the present study aims to provide a general overview of the history and key trends in this journal during 2000–2019.
Design/methodology/approach
Two types of citation and textual data during a 20-year journal period were retrieved from the Scopus database. The citation structures and contents were explored based on a combination of bibliometric analysis, altmetric analysis and text mining. The journal themes and trends of their changes were analyzed through citation bursts, mapping and topic modeling. To make a better comparison, the text mining process for the topic modeling of the IC field was performed in addition to the topic modeling of JIC.
Findings
Bibliometric analysis indicated that JIC has experienced a remarkable growth in terms of the number of publications and citations over the last 20 years. The results indicated that JIC plays a significant role among IC researchers. Additionally, a large number of researchers, institutes and countries have made contributions to this journal and cited its research papers. Altmetric analysis showed that JIC has been shared in different social media such as Twitter, Facebook, Wikipedia, Mendeley, Citeulike, news and blogs. Text mining abstract of JIC articles indicated that “measurement,” “financial performance” and “IC reporting” have the relative prevalence with increasing trends over the past 20 years. In addition, “research trends” and “national and international studies” had a stable trend with low thematic share.
Research limitations/implications
The findings have important implications for the JIC editorial team in order to make informed decisions about the further development of JIC as well as for IC researchers and practitioners to make more valuable contributions to the journal.
Originality/value
Using bibliometric analysis, altmetric analysis and text mining, this study provided a systematic and comprehensive analysis of JIC. The simultaneous use of these methods provides an interesting, unique and suitable capacity to analyze the journals by considering their various aspects.
The Government in England contributes an estimated £3.9 billion funding to support childcare and education for three- and four-year olds and for some two-year olds. A significant proportion of this money is spent on private sector childcare. However, little is known about how the money paid to companies providing private sector childcare is used. Through a cross-case analysis, the financial accounts of a sample of medium-to large private ‘for-profit’ childcare groups were compared with some ‘not-for-profit’ childcare providers. We found that for the for-profit companies, a considerable amount of money is being extracted for debt repayment and relatively little goes into staff wages. We found that large private for-profit nursery groups predominately use ‘private equity’ models which are characterised by borrowings and debt, with a focus on short-term financial returns. This ‘for-profit’ financial operating model arguably risks the sustainability of provision in the sector. Reformed regulation and transparency in the accounting of such providers and a consideration of alternative ‘not-for-profit’ financial models could provide greater stability and resilience.
The IASB’s plans to reform accounting for goodwill prompt this paper’s discussion of the translation of the signifier ‘goodwill’ (and the related terms: depreciation, amortisation and impairment). As a translation problem, this is unusually interesting because there are at least three different types of goodwill but all with the same signifier in English. The paper begins by noting the difficulties which biblical translators have had with ‘goodwill’. It then outlines the different types of accounting goodwill, recording the many terms used in eight languages. This includes a study of national regulations and the specific problems of translating IFRS. The discussion is extended to include the approaches in different languages about whether or not to distinguish depreciation from amortisation and how to translate ‘impairment’. Implications for researchers and standard-setters are drawn. This includes the need for terms which are accurately defined and which have been chosen with an eye on potential translations problems.
Abstract
Purpose
The Journal of Intellectual Capital (JIC) celebrated its 20th anniversary in 2020. Therefore, the present study aims to provide a general overview of the history and key trends in this journal during 2000–2019.
Design/methodology/approach
Two types of citation and textual data during a 20-year journal period were retrieved from the Scopus database. The citation structures and contents were explored based on a combination of bibliometric analysis, altmetric analysis and text mining. The journal themes and trends of their changes were analyzed through citation bursts, mapping and topic modeling. To make a better comparison, the text mining process for the topic modeling of the IC field was performed in addition to the topic modeling of JIC.
Findings
Bibliometric analysis indicated that JIC has experienced a remarkable growth in terms of the number of publications and citations over the last 20 years. The results indicated that JIC plays a significant role among IC researchers. Additionally, a large number of researchers, institutes and countries have made contributions to this journal and cited its research papers. Altmetric analysis showed that JIC has been shared in different social media such as Twitter, Facebook, Wikipedia, Mendeley, Citeulike, news and blogs. Text mining abstract of JIC articles indicated that “measurement,” “financial performance” and “IC reporting” have the relative prevalence with increasing trends over the past 20 years. In addition, “research trends” and “national and international studies” had a stable trend with low thematic share.
Research limitations/implications
The findings have important implications for the JIC editorial team in order to make informed decisions about the further development of JIC as well as for IC researchers and practitioners to make more valuable contributions to the journal.
Originality/value
Using bibliometric analysis, altmetric analysis and text mining, this study provided a systematic and comprehensive analysis of JIC. The simultaneous use of these methods provides an interesting, unique and suitable capacity to analyze the journals by considering their various aspects.
Keywords
Intangible Assets account for 60–75% of the market capitalization value in stock markets in most developed countries around the world (and similar percentages in stock markets in “2nd-world” countries). The relationship between Intangible assets and Sustainable Growth is discussed in: Corrado et al. (2012), UKCES (UK) (2011), Corrado et al. (2018), OECD (2013), Jona-Lasinio et al. (2016), McGrattan (2017), Corrado et al. (2009), Zhang (2017), Robbins (2016), Suriñach and Moreno (2011), Ahn et al. (December 2018), Haskel and Westlake (May 2018), Badia et al. (2019), Jorgenson et al. (2014), Zambon et al. (2019), Jona-Lasinio and Meliciani (2018), Marrocu et al. (2012), and Haskel and Westlake (2017). The concensus is that Intangible assets affect economic growth; and the inaccurate measurement of Intangible assets affects management decisions, business cycles and the formulation of economic policy. However, those foregoing articles and books don’t address the behavioral aspects of both Intangibles Assets and associated accounting regulations which can have macroeconomic effects. US GAAP and IFRS Goodwill and Intangibles accounting regulations (ASC 805—Business Combinations; ASC 350—Goodwill and Intangible Assets; IFRS 3R—Business Combinations; and IAS 38—accounting for Intangible Assets) are inefficient, don’t allow full recognition of actual goodwill/intangibles; and create potentially harmful psychological biases that have implications for group decisions (within firms), Financial Stability and risk perception.
According to both theoretical and empirical research results, this paper has the aim to determine, the extent to which the current accounting regulatory framework (IFRS 3 and IAS 36) offers an adequate basis for correct valuation of goodwill. We have researched all the available critical reviews of the accounting treatment of goodwill and the quality of applying accounting regulations onto expression of the goodwill position in BH companies’ practices. The empirical research was conducted on all the companies in the Federation of Bosnia and Herzegovina (FBiH), which recorded goodwill in their balance sheets in the period from 2013 to 2018. The research results have shown a high level of subjectivity in the process of determining the value of goodwill, and great discrepancies in adhering to the accounting regulations in the part of additional valuation and expression of goodwill value in financial reports. This resulted in the fact that the share of companies in FBiH which express decreased values of goodwill is far greater than the share of companies in the European union (EU). The main contribution of this paper is the fact that this is the first comprehensive research on evaluation of goodwill in FBiH companies in comparison to the situation in the EU. Also, it confirms the Agency Theory and shows great subjectivity in evaluation which results in an unjustified expression of a higher operative success in financial reports.
Ekonomski pregled, Vol. 72 No. 2, 2021.
https://hrcak.srce.hr/index.php?show=clanak&id_clanak_jezik=371907
This chapter examines the issue of valuation and the related issues of purchasing and selling a small firm. It highlights the fact that valuation is not a precise science, and there is no established formula for determining how much a business should be worth. It also considers consolidation and harvesting of the wealth from the business. The process of buying, selling and valuing a business can be among the biggest challenges facing the small business owner. In particular, valuation of the business is one of the more complex issues facing the small firm. For many owner-managers the value of their business is not something that they measure in an overall sense. The firm is for them a vehicle for personal and professional growth, a source of income and a place of work or lifestyle choice. However, once the owner seeks to sell their business the issues of how much it is worth comes sharply into focus.
This study presents some evidence of discount rate selection on goodwill impairment testing under the new requirements of FRS 36. The selection of discount rates is believed to be an important key factor that affects the outcome of impairment assessment, especially when using the method of value in use. This study objectively examines the Singapore listed firm’s selection of discount rates disclosed, and then tests and compares the variation between discount rates disclosed by firms for the goodwill impairment testing with independently generated estimates of firm specific risk adjusted discount rates for multi year samples of 2007, 2006 and 2005. In order to achieve the objective of this study, the Capital Asset Pricing Model (CAPM) is chosen because it describes the relationship between risk and expected return and that is used in the pricing of risky securities. For the purposes of this paper, the final research sample consists of 142, 127 and 86 firms that employed the value in use method in goodwill impairment testing and defined only a single discount rate in 2007, 2006 and 2005 respectively. The results show most of the firms understated their discount rates for 2005, while in 2006 and 2007 some firms overstated their discount rate when compared with an independently estimated risk adjusted discount rate. The results also indicate that the Singapore listed firms have difficulties in the discount rates disclosure which may in turn limit the decision usefulness of their financial disclosures by potentially diluting the robustness of the impairment testing.
This is a conceptual paper and the aim of this paper is to investigate the existing literature on the impact of Human Resource Accounting on organizational performance and to develop a framework that could be beneficial for the researchers, policy makers and investor's community. This paper uses a systematic review of literatures that focus on the impact of the factors that influence human resource accounting practice on organizational performance. The purpose of this systematic review is to collect and summarize all empirical evidence from articles that fits the context of this study. The findings of the study have been merged together in a proposed framework with the help of the disclosure of human resource accounting and use of intellectual capital accounting on organizational performance with the help of management support and employees' performance.
Human capital is a range of valuable skills and knowledge a person has accumulated over time and it is the resourcefulness that gives an organization a competitive advantage since it cannot be imitated by the competitors and therefore it is a strategic resource and an asset to the organization. There is no doubt human capital plays a crucial role in the current ever-challenging and aggressive business environment, particularly in knowledge-intensive organizations such as pharmaceutical industry. The organizations that aspire to be successful and competitive need to demand and find better ways to improve their business performance by utilizing their human capital. This study sought to establish the relationship between human capital and business performance of pharmaceutical firms in Kenya. Three research questions were used to test the relationship of the components of Human capital with the Business performance of the pharmaceutical companies in Kenya. Data was collected from 19 pharmaceutical firms. Pearson correlation and regression were used to test the relationship and significance. The findings indicated that the three dimensions of Human capital that is learning and education, experience and expertise, innovation and creation have positive and significance relationship with business performance of pharmaceutical firms'. However learning and education was the most significant variable. Therefore, accounting for human capital is essential for the improved business performance of pharmaceutical firms.
According to the growing importance of intangible assets, the research aims to investigate the significance of intangibles for Croatian, Slovenian, Czech, German and US publicly traded companies. The analysis is focused on intangibles that meet the criteria for the recognition in financial accounts. The results of the analysis prove that in the period 2004-2008 intangibles constitute an important asset for traditional market economies, which does not result for post-transition and transition economies, despite the fact that many analyses underline their growing significance in today's business environment. Independent t-test was used to test a difference between selected companies. A future research approach should analyze the proportion of intangibles that do not meet the criteria for their recognition and found out if transition economies actually possess a significantly lower proportion of intangibles.
Purpose
– 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.
Design/methodology/approach
– 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.
Findings
– 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.
Originality/value
– 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.
Purpose
– The purpose of this paper is to introduce new economic psychology theories that can explain fraud, misconduct and non-compliance that may arise from the implementation and enforcement of accounting standards codification (ASC) 805/350, international financial reporting standards (IFRS) 3R and IAS-38.
Design/methodology/approach
– The approach is entirely theoretical. The paper analyzes existing theories about real options and enforcement of regulations/statutes, and introduces new psychological biases that can arise.
Findings
– The real options approach suggested for handling the enforcement of goodwill/intangibles regulations is not effective.
Research limitations/implications
– The research is limited to international accounting standards board (IASB)/IFRS and financial accounting standards board (FASB) accounting standards.
Originality/value
– The critiques and theories developed in the paper can be used in the analysis of selection of disputes for litigation, anti-corruption programs and regulation of transactions that are susceptible to fraud.
This paper reviews the literature for the intellectual capital. This paper reviews all the articles published in the Journal of Intellectual Capital from year 2000 (year of inception of the journal) to year 2006. The researchers observe the following: 1) there is no universal definition for intellectual capital (IC); 2) the cause and effect relationship between IC and value creation is, at best, indirect; 3) the methods of measuring IC are increasing in number but there is no universally accepted measure; 4) the components of intellectual capital are not well organised in an accepted structured.
This research investigates the relationship between intellectual capital and web trends of the index bist-30 from an accounting viewpoint. As well known, bist-30 is comprised of top 30 firms listed in Istanbul Stock Exchange. The trends of web pages and firm are analyzed using specific web means such as the Google Trends. In addition, Market Value / Book Value and Value Added Intellectual Coefficient (VAIC) methods are utilized to measure intellectual capital. Also, enterprise web sites, firm annual reports, company financial statements and Public Disclosure Platform are taken advantage for accounting and measurement of intellectual capital
The nature of goodwill continues to be misunderstood by most accountants and confusion surrounding the measurement and reporting of goodwill persists. The rejection of official accounting standards on goodwill is a common occurrence. A dynamic open system perspective is used in this paper to re‐examine the nature of goodwill. It is found that a meaningful economic interpretation can be developed for internally generated goodwill but not for ‘purchased goodwill’. There is an inability to identify the stream of benefits specifically associated with goodwill arising on acquisition.
This paper discusses the basis for accounting for goodwill on acquisitions in the UK under the assumption that a primary purpose of financial statements is to monitor and motivate the financial performance of management. It establishes a case against the immediate write-off of goodwill to reserves and in favour of the capitalisation and amortisation of purchased goodwill. As the limited objective of the analysis is the improvement of current practice, the argument proceeds by reference to historical cost accounting.
The nature of goodwill continues to be misunderstood by most accountants and confusion surrounding the measurement and reporting of goodwill persists. The rejection of official accounting standards on goodwill is a common occurrence. A dynamic open system perspective is used in this paper to re-examine the nature of goodwill. It is found that a meaningful economic interpretation can be developed for internally generated goodwill but not for ‘purchased goodwill’. There is an inability to identify the stream of benefits specifically associated with goodwill arising on acquisition.
In late 19th century Britain it was widely accepted by leading authorities that 'goodwill` was simply the purchase of sufficient expected 'surplus profits` to persuade the owners of a business to part with its net assets and control, and that this expenditure should be capitalized and amortized against those surplus profits as they are realized. Although this method remains the conventional wisdom, and dominates current international regulation and practice, its conceptual foundation appears lost to modern scholars, for whom the 'problem` of accounting for goodwill is 'insoluble`. In the first part of the paper the concepts of Marx's political economy are employed to elaborate the conventional method, which is argued to be necessary to allow the capital markets to observe the generation and realization of profit and the rate of return on capital. From this perspective, the heavily criticized decision of the UK authorities in SSAP22 to encourage the write-off of goodwill against capital is an anomaly requiring explanation. It is usually explained as either the ASC's acceptance of economic income accounting as the ideal for financial reporting, or its acquiescence to powerful managerial interests. In the second part, these explanations are criticized, and an alternative hypothesis advanced which is consistent with the limited evidence available. That, although the capital markets usually want purchased goodwill to be capitalized and amortized, in the peculiar circumstances of the UK, where unusually large portions of its manufacturing industry were closed or run down in the acquisitions and merger boom of the 1980's, writing-off purchased goodwill against capital was in the collective interest of investors because it helped to hide from public view the fact that dividends were being paid from capital.
The accounting for purchased goodwill generates greater interest whenever merger and acquisition activity is robust, as it has been recently. Standard setters have been active, too. The United Kingdom's Accounting Standards Board (ASB) has issued a new standard on goodwill accounting, the International Accounting Standards Committee (IASC) has issued standards (approved but not yet released) on both business combinations and intangible assets and the Financial Accounting Standards Board (FASB) has undertaken a project on accounting for business combinations, including goodwill accounting. In the United States, the amount paid for goodwill in a purchase business combination currently must be amortized over a period not to exceed 40 years. To avoid the resulting drag on reported earnings, many companies seek to account for their combinations as poolings of interests so that purchased goodwill is not recorded and amortized. Not surprisingly, the vast majority of large combinations in the United States are recorded as poolings, although that treatment is much less common in other parts of the world. For example, poolings are prohibited under Australian standards, and under Canadian, U.K. and IASC standards they are restricted to combinations in which an acquirer cannot be identified. The growing globalization of capital markets is reducing the tolerance for continued differences in accounting standards, including those for business combinations. Since the United States is perceived as being out of step with other countries, that raises the question of whether U.S. standards should be revised, which has, in turn, placed the spotlight on goodwill accounting. Some believe that goodwill should be recognized as an asset, while others argue that it should not be. The question of whether goodwill is an asset has not been addressed in the context of the conceptual definition of assets in FASB (1985) Concepts Statement No. 6, Elements of Financial Statements.1 Determining whether goodwill is an asset, entails considering the nature of goodwill in order to ascertain whether it possesses the essential characteristics of an asset under the FASB's definition. At its November 19, 1997, board meeting, the Board decided that goodwill meets the assets definition in Concepts Statement No. 6 and this commentary presents the reasoning behind that decision. Whether goodwill is an asset is the first of many issues the Board must address in its business combinations project. However, it is one of the most fundamental issues because the Board must have a common understanding of what goodwill is before it can address how to account for goodwill. If the Board had decided that goodwill did not meet the assets definition, the ensuing discussions in its business combinations project would have been markedly different. Although the FASB had a project on business combinations on its agenda two decades ago, it did not complete the project nor did it address that question in the context of the assets definition because the definitions were in the process of being developed and had not been finalized.
Typescript (carbon copy). Thesis (Ph. D.)--New York University, Graduate School of Business Administration. Includes bibliographical references (leaves 228-230).
Fair Values in Acquisition Accounting
- Accounting Standard Board (ASB)
Accounting for Goodwill
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Goodwill ruffles feathers”, Accountancy Ireland
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Business Combinations
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Accounting, Evaluation and Economic Behavior
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Accounting Research Bulletin No. 24
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Restatement and Revision of Accounting Research
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Testing Goodwill: A Case Study
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Australia's AAS 18 - has it solved the goodwill problem?
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Accounting for goodwill - theoretical and conceptual arguments”
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Le ‘Goodwill’ – un autre point de vue
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Goodwill: an eternal controversy
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Accounting for goodwill – summary of comment on discussion paper
- (The) Malaysian Accountant
Goodwill – there is no obvious solution
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Goodwill - further attempts to capture the will-o'-the-wisp
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Consolidated Financial Statements
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Intangibles – an alternative view
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Goodwill: an eternal controversy The CPA Journal Online Goodwill – further attempts to capture the will-o'-the-wisp
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Kennedy, S. (1995), " Unresolved goodwill ", Accounting Technician, The Journal of the Association of Accounting Technician, August. (The) Malaysian Accountant (1988), " Accounting for goodwill – summary of comment on discussion paper ", January-March.
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Zeff, S.A. and Dharan, B.G. (1994), Readings and Notes on Financial Accounting, 4th ed., McGraw-Hill, Maidenhead, Ch. 4. Further reading Acher, G. (1994), " One step forward, one step back ", Accountancy, February. Barker, C.P. (1990), " Goodwill ruffles feathers ", Accountancy Ireland, December. Carnegie, D.G. (1996), Accounting History Newsletter 1980-1989 and Accounting History 1989-1994, Garland Publishing, New York, NY and London.
Goodwill and Intangible Assets
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