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ABSTRACT: The paperstudiesthe concept of valuation of business and goodwill. The study sets out to address the relationship between thevaluation of business and goodwill.The paper centredon concepts such as valuation of the business, needs for valuation of a business, going concern value, liquidation value, valuation methods and conceptual framework of thestudy. The paper also assessed the importance of goodwill in the valuation of a business enterprise. The study revealed that understanding the concept of valuation of business from the angle of an accountant is necessary. An appraisal of a closely held business enterprise is not merely an academic exercise. Real businesses and individuals are involved, and the appraiser must be careful to reflect the judgments that real business owners and investors would apply in determining the fair market value for a business enterprise. KEYWORDS: Valuation, Business, Goodwill
International Journal of Business and Management Invention (IJBMI)
ISSN (Online): 2319 8028, ISSN (Print): 2319 801X
www.ijbmi.org || Volume 8 Issue 02 Series. III || February 2019 || PP 60-66
www.ijbmi.org 60 | Page
What Valuation of Business and Goodwill Means
Oyewobi, Ifeoluwapo A.
Department of Accounting and Finance Bowen University, Iwo, Osun State Nigeria
ABSTRACT: The paperstudiesthe concept of valuation of business and goodwill. The study sets out to
address the relationship between thevaluation of business and goodwill.The paper centredon concepts such as
valuation of the business, needs for valuation of a business, going concern value, liquidation value, valuation
methods and conceptual framework of thestudy. The paper also assessed the importance of goodwill in the
valuation of a business enterprise. The study revealed that understanding the concept of valuation of business
from the angle of an accountant is necessary. An appraisal of a closely held business enterprise is not merely
an academic exercise. Real businesses and individuals are involved, and the appraiser must be careful to
reflect the judgments that real business owners and investors would apply in determining the fair market value
for a business enterprise.
KEYWORDS: Valuation, Business, Goodwill
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Date of Submission: 03-02-2019 Date of acceptance: 19-02-2019
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I. INTRODUCTION
The value of stocking in a public corporation is determined by checking the capital market and finding
the price at which the stock is trading (Gunlaugsson, 2007). However, if you own stock in a closely held
corporation, you have no market reference to determine the stock's value. How can you determine the value of
stock in a closely heldbusiness enterprise? The term valuation is the process of estimating an item worth.
According to Bloom (2008), it means anappraisal of cost, that is, the act of determining the value or price of
something, especially property. It can also be seen as the price of something established by anappraisal of its
quality, condition and, desirability, or of the cost of replacement. Valuation is used as a very effective business
tool by management for better decision making throughout the life of the business enterprise(Chen, Shroff, &
Zhang, 2013). InBarnabe(2014),valuation isneeded forinvestment analysis, capital budgeting, merger and
acquisition transactions, financial reporting, determination of tax liability and litigation amongst others
Fernandez (2002)shared that companies are governed and valuations are influenced by the market
supply-demand life cycles along with product and technology supply-demand lifecycles.Robert (2015)
established that the value of abusiness enterprise over the course of its life speaks with the market and
product/technology factors that financial investors such as venture capitalist and entrepreneurs involved in a
venture would ideally like to exit the venture in some form near the peak to maximize their return on
investment. Thus, valuation helps determine the exit value of the business enterprise's assets. Barnabe(2014)
pointed out that there are two types of values: tangible value,and intangible value. Tangible value typically
includes balance sheet items recorded as the book value of the business enterprise and intangibles typically
include intellectual property, human capital, brand,and customers, among others.
In more traditional companies, the value of intangibles is much higher than the value of the tangible
assets. Therefore, an effective business enterprise valuation methodology needs to be developed. Valuation can
also be seen as a measurement of value in monetary terms (Brealey, & Myers,2000). Jarva (2009)pointed out
that the measurement of income and valuation of wealth are two interdependent care aspects of financial
accounting and reporting. Wealth comprises of assets and liabilities. Valuation of assets and liabilities are made
to portray the wealth position of a firm through a balance sheet and to supply logistics to the measure of the
periodical income of the firm through a profit and loss account. Likewise, GlobalEdge (2011)postulated that the
valuation of the business is made through financial statement analysis for management appraisal and investment
decision.
According to Gunlaugsson (2007) valuation of business is of different types, they are, going - concern
valuation, liquidation valuation, book value valuation, market valuation, fair market valuation, intrinsic
valuation,and extrinsic valuation. Floricioiu and Loghin (2011)pointed that there are also four concepts of
valuation of business; they are a valuation of tangible fixed assets, valuation of intangibles including brand
valuation and valuation of goodwill, valuation of shares and, valuation of the business. According to Carlin and
Finch (2010), business enterprise value as per market capitalization is the understanding concept of valuation of
business through the position of an accountant.In the valuation of the business, it is either the business is valued
ongoing concern(Tangible Asset backing valuation) or liquidation valuation (Goodwill valuation). However, it
What Valuation of Business and Goodwill Means
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is important to note that intangible assets are the major contributes to the disparity between business
enterprisevalues.
The term goodwill means the difference between the value of a business enterprise as a whole and the
sum of the current fair values of its identifiable tangible and intangible net assets. Also, according to SSAP-22,
goodwill is the difference between the value of a business as a whole and the aggregate of the fair values of its
separable net value. Valuation of goodwill may occur for different reasons which include sale of sole
proprietorship firm, a new partnership taken and existing business enterprise being taken with or amalgamated
with another existing business enterprise.Goodwill is an intangible and invaluable asset (singh, 2018). In
business valuation, segregating the intangible value of a company between personal and enterprise goodwill is
becoming increasingly relevant. Intangible assets represent the excess market value of a business, beyond the
value of its tangible assets. Thus, this study focused on the concept valuation of business and goodwill.
Research
Valuation of business is a process and a set of procedures used to estimate the economic value of an
owner’s interest in a business(Schipper, 2005). Barnabe(2014) acclimate that valuation is used by financial
market participants to determine the price they are willing to pay or receive to consummate a sale of a business.
In addition to estimating the selling price of a business, the same valuation tools are often used by business
appraisers to resolve disputes related to estate and gift taxation, divorce litigation, allocate business purchase
price among business assets, establish a formula for estimating the value of partners' ownership interest for buy-
sell agreements, and many other business and legal purposes(Barnabe, 2014).
In an argument put forward by Fernandez (2002), he shared that there is a need for valuation of
business and such need must be pronounced in all circumstance. Merger and Take-overwere first suggested as
the need for valuation(Fernandez, 2002).Bloom (2008)pointed outthose companies in merger need a valuation of
business as a going concern to settle the purchase consideration. In the case of take-over , Anot support was
raised by Dorata(2009)where the acquirer needs the information about the total value of the business such that
he can determine the value of the proportion which he intends to buy. Likewise,Gunlaugsson (2007) mentioned
that the sale of abusiness is another reason for evaluation. He shared that in selling the whole business or any
division of it, both the seller and buyer want to know the value of the business to fix up the bargaining limit.
Another reason was postulated by Carlin and Finch (2010) that for the purpose of liquidation there is a need for
valuation. This need was also supported by Singh (2018)who explained that in case of liquidation, the
shareholders want to know the value of the business from the liquidator to understand how much they would
get. According to Barnabe, (2014), there are two basic approaches which a valuator can use to determine
the value of a business. The first one is an empirical approach and the second is investment approach.Thesecond
one is the most widely used in evaluating a closely-held business or business interest. In the empirical approach,
fair market value is best determined by reference to open market transactions involving similar businesses. In
the investment approach, fair market value is best determined by reference to detailed investment analysis,using
the techniques of financial statement analysis and risk measurement theory.
Likewise, Robert (2015) suggested that inside the investment approach, there are two methods which
are used to value a business, the first one is asset basis, and the second is income or cash flow basis. In a
conclusion by Gowthorpe (2009), he established that the asset basis is used in either, or both, of a going-
concern or liquidation value approach, while the income/cash flow basis is used only in the going-concern value
approach. Financial analysis of the business usually begins by seeking to answer the question of whether the
business is a goingconcern, and if it is, whether it has any intangible valueRobert (2015). If the business is not a
goingconcern, then the appropriate basis is the liquidation value.
Going-concern value
Where a business is determined to be a goingconcern, there are two possible bases for determining
value: asset basis and earnings/cash flow basis (GlobalEdge, 2011). The choice depends on whether the business
has any commercial goodwill.Goodwill can be categories into commercial and personal. Commercial goodwill
is connected with business and can be transferred to new business owners; consequently, it has transferable
value. Personal goodwill is connected with the owner(s) of a business, either through their special skills or their
personal contacts and reputation.
Personal goodwill may provide excess earnings over those expected with a given tangible asset backing
but is not transferable and, consequently, has little or no market value. Accordingly, a key element in any
business valuation is to identify the nature of goodwill and whether or not it has any commercial (transferable)
value (GlobalEdge, 2011). Accountants go wrong in providing a business valuation. They assume that because
a business has excess earnings over that expected with a given amount of tangible asset backing (TAB), the
business has value in excess of TAB. This depends on the nature of the business.
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Liquidation Value
There are two distinct types of liquidation: the orderly liquidation and the forced liquidation.The
orderly liquidation assumes that a reasonable period of time is allowed to obtain the highest price for the assets
being liquidated. However, caution must be exercised, as costs incurred over this reasonable time might exceed
the difference between the price realizable on an orderly liquidation over that available in a forced liquidation
(Robert, 2015). Where such costs will exceed this incremental gain, then it is appropriate to utilize forced
liquidation values, as these would provide higher proceeds.Jarva (2009)revealed that a forced liquidation
assumes that the assets will be sold within a short time, without any attempt to realize the highest price. This is
often referred to as a “fire sale.” Forced liquidation is irrelevant in any determination of fair market value.
Valuation Methods
These valuation techniques are easily the most commonly used, other than in valuations for specific,
niche industries such as oil & gas or metal mining (and even in those industries, the aforementioned valuation
techniques frequently come into play)(Bloom, 2009). Different parts of the investment bank will use these core
techniques for different needs in different circumstances. Frequently, however, more than one technique will be
used in a given situation to provide different valuation estimates, with the concept being to triangulate a
business enterprise’s value by looking at it from multiple angles.
II. CONCEPTUAL FRAMEWORK
Figure 1: Valuation of Business and Valuation of Goodwill
The paper set out the relationship between the valuation of abusiness and the valuation of goodwill. A
business enterprise value is either determined on going concern basis or liquidation basis. For a business
enterprise valuation ongoing concern, there are two possible bases for determining value, the asset basis and
earnings/cash flow basis(GlobalEdge, 2011). The choice also depends on whether the business enterprise is
being liquidated or not, then the liquidation value has to be determined. The liquidation value could either be
transferable or un-transferable.
Generally speaking, valuation of closely held businesses has greatly matured over the years (Tom, Tim
& Jack, 2000). The value of a closely held security is commonly considered its fair market value. "Fair market
value" has been defined as the cash (or cash-equivalent) price at which the security would change hands
between a willing buyer and willing seller, neither being under any compulsion to buy nor sell and both having
What Valuation of Business and Goodwill Means
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reasonable knowledge of relevant facts. Fernandez (2002) opined that the purpose ofthe valuation affects the
value conclusions by its characterization of the willing buyer and seller in this common definition. The
characterization of the willing buyer and seller is important because different buyers and sellers assign different
values to a business and its securities.
A "real world" buyer would assign a higher value to a business or its securities if that business were a
good fit with the buyer's current business. In this way, the "best fit" buyer both increases the benefits and
reduces the risk of the business investment opportunity. On the other hand, a buyer who had no similar business
did not want to manage the business purchased, and was concerned about the lack of liquidity in owning a
closely held security would pay far less for the same business or its securities. This buyer would pay less
because the risks are so much greater than they are to the "best fit" buyer (Barnabe, 2014).
Goodwill
Goodwill is the difference between the value of a business enterprise as a whole and the sum of the
current fair values of its identifiable tangible and intangible net assets. Net assets are the assets that are left after
subtracting the business enterprise’s liabilities. Goodwill is said to be that element arising from reputation,
connection or other advantages possessed by a business which enables it to earn greater profits than the return
normally to be expected on the capital represented by net tangible assets employed in the business (Financial
Times, 2005). In considering the return normally to be expected, regard must be had to the nature of the
business, the risk involved, fair management remuneration and other relevant circumstances.
According to Carolyn (2006), goodwill of a business may arise in two ways. It may be inherent to the
business, that is, generated internally or it may be acquired while purchasing any concern. Purchased goodwill
can be defined as being the excess of fair value of the purchase consideration over the fair value of the separable
net assets acquired. The value of purchased goodwill is not necessarily equal to the inherent goodwill of the
business acquired as the purchase price may reflect the future prospects of the entity as a whole. Financial
advisers are often asked to value the different types of goodwill for the transaction, taxation, financial
accounting, litigation, and other purposes.
In financial statements, goodwill arises when a business enterprise is purchased for more than the fair
value of the identifiable net assets of the business enterprise. The difference between the purchase price and the
sum of the fair value of the net assets is by definition the value of the "goodwill" of the purchased business
enterprise. The acquiring business enterprise must recognize goodwill as an asset in its financial statements and
present it as a separate line item on the balance sheet, according to the current purchase accounting method.
Bloom (2008) reported that, in this sense, goodwill serves as the balancing sum that allows one firm to provide
accounting information regarding its purchase of another firm for a price substantially different from its book
value.
Also, goodwill can be negative, arising where the net assets at the date of acquisition, fairly valued,
exceed the cost of acquisition (Simom, 2011). Negative goodwill is recognized as a gain to the extent that it
exceeds allocations to certain assets. Under current accounting standards, it is no longer recognized as an
extraordinary item. For example, a software business enterprise may have net assets (consisting primarily of
miscellaneous equipment, and assuming no debt) valued at ₦1 million, but the business enterprise's overall
value (including brand, customers, intellectual capital) is valued at ₦10 million. Anybody buying that business
enterprise would book ₦10 million in total assets acquired, comprising ₦1 million physical assets, and ₦9
million in goodwill. There are basically two accounting methods for goodwill
valuation,capitalisationmethod,andsuper profit method. A third method called annuity method is a refinement of
the super profit method of goodwill valuation.
Accounting View of Goodwill
From the accounting perspective, goodwill is generally recorded only if it is acquired as part of a
business or professional practice purchase (Business News, 2017). The typical way the accountants handle
goodwill then is by subtracting the fair market value of the business tangible assets from the total business
value. Note that this definition of business goodwill captures all intangible business assets, not just the goodwill.
Economic View of Goodwill
A quantitative view of business goodwill adopted by the economist is that it equals the capitalized
value of the earnings in excess of the fair return on all the other business assets, both tangible and intangible
(Simon, 2011). This view seeks to establish the value of all identified business assets by allocating a portion of
the business income to them. The remaining or excess earnings are then considered to be due to business
goodwill.
What Valuation of Business and Goodwill Means
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Approaches of Valuing Goodwill
The cost approach:Using the cost approach, the financial adviser estimates the amount of current cost required
to recreate the goodwill component elements. The cost approach typically involves a component restoration
method(Wines,Dagwell& Windsor, 2007). The first procedure in the component restoration method is to list all
of the individual components of the entity’s goodwill. The second procedure is to estimate the amount of the
current cost required to replace each goodwill component. This procedure is based on the concept of goodwill as
represented by the intangible value of all entity assets in place and ready to use.
One procedure in the restoration method is the analysis of foregone income (considered an opportunity
cost in the cost approach) during the time period required to assemble all of the entity’s tangible assets and
identifiable intangible assets. For example, let’s assume that it would take two years to assemble the entity’s
entirecomponent of tangible assets and identifiable intangible assets. This time period represents the total
elapsed time required for the assembled assets to reach the same level of utility, functionality, capacity, and
income generation as exists in the actual going-concern business entity.
The market approach: There are two common market approach methods related to goodwill (Gunlaugsson,
2007). The first method estimates the value of goodwill as the residual from an actual business acquisition price.
This method is called the residual from purchase price method. The second method estimates the value of
goodwill based on an analysis of guideline sale transactions. This method is called the sales comparison method.
Goodwill is rarely sold separately from any other assets (either tangible assets or intangible assets) of a going-
concern business. Therefore, the selected guideline sale transactions usually involve the sale of a going-concern
business. The financial adviser selects publicly reported transactions in which the allocation of the sale price
between the purchased goodwill and all other acquired assets is reported.
Accordingly, this market approach method effectively relies on a residual from purchase price
procedure to estimate the goodwill value (Dahmash, Durand& Watson, 2009).To use the residual from purchase
price method, there has to be a sale of the actual entity. First, if there is such a sale transaction, the financial
adviser confirms that the transaction was an arm’s-length sale. Second, the financial adviser confirms that the
purchase price represents a cash equivalency price for the entity. For example, if there are noncash consideration
components or deferred payments (for example, an earn-out provision) as part of the purchase price, the
financial adviser converts the entire consideration to a cash equivalency price.
Third, the financial adviser estimates the value of each of the entity’s tangible assets and identifiable
intangible assets. Fourth, the financial adviser subtracts the total value of all of the tangible assets and
identifiable intangible assets from the business purchase price. The residual amount represents the goodwill
value. Jarva (2009) advised that to use the guideline sale transactions method, the financial adviser identifies
and selects actual sales of guideline entities that are sufficiently similar to the subject entity. For purposes of this
analysis, comparability is typically based on the criteria of investment risk and expected return. For certain types
of businesses, such as certain types of professional practices, guideline sale transactional data are fairly easy to
assemble. Such transactional data are reported in publicly available publications and periodicals.
With regard to these sale transactions, the purchased goodwill may be typically expressed as a percent
of the total transaction price or a percent of the total annual revenue earned by the entity that was sold in the
transaction (Jarva, 2009). These market-derived goodwill pricing multiples are then applied to the subject entity
to estimate the entity’s goodwill value. It is noteworthy that the multiples are also estimated; that is, these
transactional pricing multiples are themselves based on an allocation of the purchase price for each business or
professional practice included in that transactional data source.
The income approach:With regard to goodwill, the income approach methods include the residual from
business value method, the capitalized excess earnings method, and the present value of future income method
(Bloom, 2009). Each of these valuation methods is based on the concept of goodwill as the present value of
future income not associated with the entity’s tangible assets or identifiable intangible assets.
Importance of Goodwill in the Valuation of Business Enterprise
There are many reasons why a financial adviser may be asked to value goodwill of a business enterprise. Some
of these reasons are:
Economic damage analyses: When a business has suffered a breach of contract or a tort (such as an
infringement, breach of a fiduciary duty, or interference with business opportunity), one measure of the damages
suffered is the reduction in the value of the entity’s goodwill due to the wrongful action (Robert, 2015). This
analysis may encompass the comparative valuation of the entity’s goodwill before and after the breach of
contract or tort. This before and after the method is also useful for quantifying the economic effects of a
prolonged labour strike, a natural disaster, or a similar phenomenon.
What Valuation of Business and Goodwill Means
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Business or professional practice merger: When two businesses merge, the equity of the merged entity
typically is to be allocated to the merger partners (Tollington, 2006).One common way to allocate equity in the
merged entity is in proportion to the relative value of the assets contributed, including the contributed goodwill.
Business or professional practice separation: When a business separates, the assets of the consolidated
business typically have to be allocated to the individual business owners. According to Barnabe(2014), one
common way to allocate the assets to the separating business partners is in proportion to the relative value of the
assets controlled by or developed by each partner, including the goodwill of each business partner.
Solvency test: The solvency of a business entity is an issue with regard to lender’s fraudulent conveyance
concerns during a financing transaction or a financial restructuring (Bloom, 2008). One of the individual tests to
determine if a business entity is a solvent is: Does the fair value of the entity’s assets exceed the value of the
entity’s liabilities (after consideration of the financing transaction)? One of the entity’s assets that is considered
in a solvency analysis goodwill.
Insolvency test: The degree of the insolvency of a business entity may have federal income tax consequences if
the debt is forgiven (in whole or in part) during a refinancing transaction or financial restructuring (Financial
Times, 2005). One of the specific tests to determine if a business entity is insolvent for federal income tax
purposes is: Is the fair market value of the entity’s assets less than the value of the entity’s liabilities (before the
debt forgiveness)? The cancellation of debt income is not recognized as taxable income to the extent that the
taxpayer-debtor is insolvent (Robert, 2015). The federal income tax regulations specifically indicate that one of
the assets that should be considered in an insolvency analysis is goodwill.
III. SUMMARY AND CONCLUSION
In this paper, the concept valuation of business and goodwill was examined. The study examined the
going-concern value method and liquidation value method which are the two valuation methods undervaluation
of a business enterprise. The study revealed that financial analysis of a business begins by seeking to answer the
question of whether the business is a goingconcern, and if it is, whether it has any intangible value (goodwill).
If the business is not a goingconcern, then the appropriate method is the liquidation value basis. The paper also
discussed the transferable and un-transferable goodwill, that is, commercial goodwill and personal goodwill.
The paper concluded by discussing the importance of goodwill in the valuation of a business enterprise. The
appraiser must be careful to reflect the judgments that real business owners and investors would apply in
determining the fair market value for a business enterprise.
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Oyewobi" What Valuation of Business and Goodwill Means" International Journal of Business
and Management Invention (IJBMI), vol. 08, no. 02, 2019, pp 60-66
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Goodwill, sometimes purchased but often more significantly internally generated, is the major constituent of the value of many listed companies. Accounting aims to provide users of financial statements with useful information, and more than fifty current International Financial Reporting Standards prescribe accounting disclosure requirements in minute detail. However, these Standards dismiss internally generated goodwill with a single brief provision that it is not to be brought to account at all. The impairment regime now laid down for dealing with purchased goodwill contains severe flaws, while previous methods have also been found to be unsatisfactory. This book traces the history of the goodwill accounting controversy in detail and demonstrates that it has been a prime example of an issue 'conceived in a way that it is in principle unsolvable'. It explores the problem of recognising the importance of goodwill as a whole and finding a way of presenting meaningful information regarding it in the context of the financial statements. The author's proposed solution builds upon research undertaken and uses a Market Capitalization Statement, based on a modification of nineteenth century 'double accounting' in a modern context. Examples show that the proposed Market Capitalization Statement has the potential to provide significant information not currently available form conventional financial statements, which in turn are freed to present clearer information.
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The Financial Accounting Standards Board issued Statement No. 141 (R) that replaces Statement of Financial Accounting Standard No. 141, Business Combinations. The new standard mandates use of the acquisition method, which requires expense treatment for acquisition-related transaction costs. Expense treatment is a departure from purchase accounting procedures, but is consistent with past guidance of Accounting Principles Board Opinion No. 16 for the pooling-of-interests method. Restoration of historical and controversial accounting procedures resurrects past outcomes. This study utilizes econometric techniques to predict outcomes of the acquisition method. Evidence indicates that expensing acquisition-related costs may improve transparent reporting. The results, based on 638 business combinations from 1994 through 1998, support the expectation that expense treatment for acquisition-related costs increases the likelihood that these costs appear more frequently and are greater in magnitude.
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Using Giddens structuration theory this paper explores the social structure in respect of accounting for goodwill and intangible assets and the social action of respondents to that structure as drawn from the ASB's consultation process leading up to the implementation of FRS10 on Goodwill and Intangible Assets. The interaction of social structure and social action shows that a crisis of domination occurred during the consultation period: 1993–1997.
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Purpose – The purpose of this paper is to report the findings of a study designed to understand the extent of compliance with the goodwill accounting and reporting disclosure requirements under AASB 136 among a sample of goodwill intensive Australian firms over the first two years of their IFRS adoption. Design/methodology/approach – Examining the goodwill reporting practices adopted by a sample of 50 large Australian listed firms, which disclosed the existence of goodwill in each of the first two years in which they produced financial statements pursuant to IFRS. The quality and technical accuracy of the goodwill disclosures produced by these organisations together with an assessment of evidence of variation in these over time provides an evidentiary basis for analysis. Findings – The paper finds continued high levels of non‐compliance with the goodwill accounting standard suggesting that a viable organisational option in the face of change is to fail to take steps to comply. This organisational response undermines the assumptions of consistency and comparability as key qualitative characteristics under IFRS. Originality/value – The focal question pondered pertains to the nature of organisational responses to changes such as those brought about by continued development and reform of financial reporting standards. This is a question with potentially significant implications for a range of stakeholders including auditors, financial analysts, regulators and report users.
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Contenido: 1. El valor de la empresa y la misión del director: ¿Por qué valorar el valor?; El gestor del valor; Principios fundamentales para la creación de valor; Los parámetros de medida: cómo sobrevivir al bombardeo de parámetros de medida del valor; El cash flow manda; Cómo generar valor; Fusiones, adquisiciones y joint ventures; ; 2. Valoración por el cash flow: una guía para profesionales: Esquemas para la valoración; Análisis de los rendimientos históricos; Estimación del coste de capital; Previsión de los resultados; Estimación del valor residual; Cálculo e interpretación de los resultados; 3. Aplicar la valoración: Valoración de empresas multinegocio; Valoración de las dot.com; Valoración de empresas cíclicas; Valoración de filiales extranjeras.
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This paper discusses intellectual capital (IC) accounting in the context of organisational boundary theory, building upon insights provided by Llewellyn [Llewellyn S. Managing the boundary. How accounting is implicated in maintaining the organisation. Accounting, Auditing and Accountability Journal 1994;7(4):4–23]. The impetus towards accounting, via recognition and measurement, or via description, for IC is examined from a boundary theoretical perspective, as it affects both financial reporting to parties outside the organisation and internal reporting in the form of management accounting. The notion of intellectual ‘capital’, as it has been developed so far, is criticised in this paper as an incomplete terminology that emphasises only certain aspects of intellectual assets, failing to take into account the ‘dark side’ of the asset base, intellectual liabilities or intellectual contingent liabilities. Further, the application of IC measurement in management control, and the creation and employment of IC metrics are criticised from an ethical standpoint. Clarification of the complex issues involved in IC accounting is offered by Grandori's (2000) proposal of a multiplicity of organisational boundaries, the related idea of a range of different accountability elements, and, ultimately, of a matching multiplicity of modes of accounting.
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We examine the value relevance and reliability of reported goodwill and identifiable intangible assets under Australian GAAP from 1994 to 2003; a period characterised by relatively restrictive accounting treatment for goodwill and relatively flexible accounting treatment for identifiable intangible assets. Our findings, using an adaptation of Feltham and Ohlson (1995), suggest that for the average Australian company the information presented with respect to both goodwill and identifiable intangible assets is value relevant but not reliable. In particular, goodwill tends to be reported conservatively while identifiable intangible assets are reported aggressively.
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Valuation Methods and shareholder value creation is a complete book about business valuation and value creation. The book explains the nuances of different valuation methods and provides the reader with the tools for analyzing and valuing any business, no matter how complex. With 631 pages divided into four parts, Valuation and shareholder value creation uses 140 diagrams, 211 tables, and more than 100 examples to help the reader absorb these concepts. This book contains materials of the MBA and executive courses that I teach in IESE Business School. It also includes some material presented in courses and congresses in Spain, US, Austria, Mexico, Argentina, Peru, Colombia, UK, Italy, France and Germany. The chapters have been modified many times as a consequence of the suggestions of my students since 1988, my work in class, and my work as a consultant specialized in valuation and acquisitions. I want to thank all my students their comments on previous manuscripts and their questions. The book also has results of the research conducted in the International Center for Financial Research at IESE. Part I - Basics of Valuation Methods and Shareholder Value Creation Part II - Shareholder Value Creation Part III - Rigorous Approaches to Discounted Cash Flow Valuation Part IV - Real options and brands
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This paper describes several implementation effects associated with the mandated adoption of international financial reporting standards promulgated by the International Accounting Standards Board in the European Union, including a possible increased demand for detailed implementation guidance and for a single European securities regulator. The paper also discusses the mandated adoption as a research setting for considering the relative influences of standards versus incentives as determinants of financial reporting outcomes, and describes two standard setting challenges that may become more pronounced as a result of the mandated adoption.