Fair value accounting and intangible assets. Goodwill impairment and managerial choice
| Date | 11 May 2010 |
| Published date | 11 May 2010 |
| DOI | https://doi.org/10.1108/13581981011033989 |
| Pages | 120-130 |
| Author | Suntharee Lhaopadchan |
| Subject Matter | Accounting & finance |
THEMED PAPER
Fair value accounting
and intangible assets
Goodwill impairment and managerial choice
Suntharee Lhaopadchan
School of Management, Kasetsart University, Bangkok, Thailand
Abstract
Purpose – Advocates of greater intangible asset reporting frequently make the criticism that the
published financial statements of companies do not adequately reflect the value of intangible assets
and hence provide potentially misleading information to the users of the financial statements. The
purpose of this paper is to evaluate whether since the introduction of “fair value accounting,”
particularly in respect of the treatment of acquired “goodwill” shown on consolidated balance sheets,
these criticisms retain any validity. The paper investigates the extent to which it can be confidently
asserted that the recognition of acquired goodwill and the post-acquisition rules for recognizing any
goodwill “impairment” has materially improved the information available to the users of financial
statements and/or whether these developments have resulted largely in providing self-interested
managers with greater opportunities to engage in earnings and balance sheet manipulations that are of
doubtful value to users.
Design/methodology/approach – The paper critically reviews the rules and the intentions of
accounting policy makers in relation to fair value acquisition accounting and evaluates the empirical
evidence relating to corporate behavior in this area.
Findings – Despite the presumed benefits associated with fair value accounting, it is shown that in
practice managerial self-interests and earnings management concerns appear to motivate many
goodwill impairment decisions. However, as investors and analysts have always had the option to
adjust, or indeed totally ignore, reported accounting numbers it is far less certain whether this
reporting behavior actually misleads users or significantly reduces the information content (reliability
and relevance) of the financial statements.
Originality/value – The paper provides an overview of the accounting treatment and reporting
consequences associated with the introduction of fair value accounting in respect of acquired goodwill.
Keywords Fair value, Accounting, Intangibleassets, Goodwill accounting, Managerialism,
Strategic choices
Paper type Research paper
Introduction
Despite the fact that the balance sheets produced for financial reporting purposes have
never been constructed with the purpose of providing a current “fair value” of the
company to an investor, advocates of greater intangible asset reporting frequently
make the criticism that by not adequately reflecting the value of intangible assets,
these balance sheets provide users – predominantly investors and analysts – with
potentially misleading information concerning the “true” value of the company. This
paper evaluates whether since the introduction of “fair value accounting” in respect of
the treatment of acquired “goodwill” shown on consolidated balance sheets, these
criticisms are well founded.
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1358-1988.htm
JFRC
18,2
120
Journal of Financial Regulation and
Compliance
Vol. 18 No. 2, 2010
pp. 120-130
qEmerald Group Publishing Limited
1358-1988
DOI 10.1108/13581981011033989
To continue reading
Request your trial