Is Negative Goodwill Valued by Investors?

2010 ◽  
Vol 24 (3) ◽  
pp. 333-353 ◽  
Author(s):  
Eugene E. Comiskey ◽  
Jonathan E. Clarke ◽  
Charles W. Mulford
Keyword(s):  
Acquisition Cost ◽  
Fair Value ◽  
Securities Markets ◽  
Compelling Evidence ◽  
Fair Value Accounting ◽  
Accounting Standard ◽  
Business Combinations ◽  
Net Assets

SYNOPSIS: Accountants have historically distanced themselves from the concept of negative goodwill on the premise that bargain purchases should not take place in the presence of efficient securities markets. This position has been a powerful influence on the accounting for negative goodwill for over half a century. However, in line with the expansion of fair value accounting, the latest accounting standard that addresses negative goodwill, SFAS No. 141(R), Business Combinations (FASB 2007), calls for the full recognition of bargain-purchase (negative goodwill) amounts. Rather than allocating some or all negative goodwill against selected acquired assets, as has been done previously, negative goodwill is now to be recognized in the year of the acquisition as a regular item of income or gain. In essence, SFAS No. 141(R) holds that the excess of the fair value of net assets acquired over the acquiring firm’s acquisition cost constitutes the receipt of value to the acquiring firm, and should be recognized as such. While this position may seem plausible, to our knowledge there has been no research that tests whether negative goodwill is valued. Based upon a sample of acquisition transactions involving negative goodwill, our research does not provide compelling evidence that markets value negative goodwill.

A Gain by Any Other Name: Accounting for a Bargain Purchase Gain

2015 ◽  
Vol 30 (3) ◽  
pp. 233-248
Author(s):  
Mark J. Kohlbeck ◽  
Thomas J. Smith
Keyword(s):  
Fair Value ◽  
Financial Accounting ◽  
Financial Accounting Standards Board ◽  
Accounting Standard ◽  
Business Combinations ◽  
Market Values ◽  
Accounting Courses ◽  
Value Estimation ◽  
Net Assets ◽  
The Impact

ABSTRACT Students gain insight into a unique accounting treatment in acquisition accounting by completing this case—that of a bargain purchase gain (BPG). In December 2007, the Financial Accounting Standards Board (FASB) revised accounting for business combinations when they promulgated Statement of Financial Accounting Standard No. 141R, Business Combinations. Under the revised standard, acquirers record net assets of the acquiree at their respective fair market values at the time of acquisition and recognize the excess of net assets over the consideration paid as a BPG included in income from continuing operations. This case takes place after the acquisition is negotiated and the consideration is agreed upon. Students are required to estimate fair values of acquired net assets based on the information provided, determine whether goodwill or a bargain purchase gain exists, and evaluate the impact of this transaction on the financial statements. The case also requires students to consider subjectivity within the analysis, as well as to identify potential incentives that may influence certain estimates and judgments that managers make. The case is appropriate for accounting courses where business combinations, goodwill, and fair value estimation are discussed.

scholarly journals MENGUPAS PERSOALAN STANDAR AKUNTANSI KEUANGAN - GOODWIL DI BERBAGAI NEGARA : SUATU PENDEKATAN STUDI LITERATUR

2017 ◽  
Vol 2 (2) ◽  
Author(s):  
Deddy Kurniawansyah
Keyword(s):  
Research Method ◽  
Intangible Assets ◽  
Accounting Standards ◽  
Financial Statements ◽  
Fair Value ◽  
Financial Accounting ◽  
International Accounting Standards ◽  
Fair Value Accounting ◽  
Literature Study ◽  
Accounting Standard

This literature study explains and describe the development of the concept of goodwill from the perspective of accounting by observing and describing until the development at this time, discusses differences in accounting standards of goodwill applicable in some countries, and explains the things that contradict the goodwill. This research method used qualitative with literature study. The results of this study are in some countries, the concepts and rules on goodwill accounting have undergone various changes, including international accounting standards issued by the IASC. Initially goodwill is capitalized and amortized over no more than 20 years. But, along with the increasing use of fair value accounting in accounting standards, thetreatment for goodwill also experienced a shift that is eliminated by the amortization method is replaced by doing impairment test to goodwill. The results of this study contribute as add to the treasury of financial accounting literature, especially accounting treatment of goodwill as intangible assets in the financial statements of various countries such as Indonesia, America and the England.Keyword :Goodwiil, Impairment, Financial Accounting Standard

Convergence and Divergence Regarding Business Combinations

2021 ◽  
pp. 78-91
Author(s):  
Alin Eliodor Tănase ◽  
Traian Ovidiu Calotă ◽  
Gabriela Claudia Oncioiu
Keyword(s):  
Acquisition Cost ◽  
Balance Sheet ◽  
Financial Statements ◽  
Intangible Asset ◽  
Business Combinations ◽  
National Differences ◽  
Investment Cost ◽  
Net Assets ◽  
Convergence And Divergence ◽  
Legal Entities

The presence of several legal entities within the same group entails the existence of as many independent accountants as there are companies. In accordance with IFRS 3 “business combinations,” the result is goodwill that will be recognized as a non-current intangible asset in the consolidated balance sheet, being subjected annually to the impairment test; insofar as the investment cost is lower than the acquisition cost of the net assets, the negative goodwill will be obtained which will be recognized in the form a profit in the consolidated profit and loss account. In addition, national differences in accounting, taxation, and auditing are the sources of the various problems that arise in the process of controlling subsidiaries and consolidating accounts. This chapter aims to study the convergence and divergence regarding business combinations in the joint business as well as to analyze the managerial controversies that are presented in the conversion of the financial statements.

Understanding Practice and Institutions: A Historical Perspective

2016 ◽  
Vol 30 (3) ◽  
pp. 409-423 ◽  
Author(s):  
Ross L. Watts ◽  
Luo Zuo
Keyword(s):  
Corporate Governance ◽  
Financial Reporting ◽  
Fair Value ◽  
Information Control ◽  
Governance Mechanism ◽  
Fair Value Accounting ◽  
Current State ◽  
Net Assets ◽  
Anglo American ◽  
Historical Accounts

SYNOPSIS This paper explains how and why Anglo-American accounting and auditing, along with corporate governance and capital markets, evolved over many centuries in response to changes in market forces and technology. We first trace the development of practices that were included in U.S. corporate governance (including accounting and auditing) before the 1930s. We then describe the nature and effect of the increase in U.S. regulation from the 1930s and the development of fair value accounting. Finally, we give an assessment of the current state of accounting, auditing, and corporate governance. Our historical accounts suggest that the approach to accounting and financial reporting is more consistent with stewardship (care of net assets) than an attempt to value the firm, and that conservatism (prudence) is a critical information control and governance mechanism. We echo the U.K. Financial Reporting Council's call on standard setters to reintroduce an explicit reference to conservatism (prudence) into the Conceptual Framework for financial reporting. JEL Classifications: M41; M42; M48; N20.

scholarly journals Fair Value Concept Specifics in Financial Reporting and Auditing

2015 ◽  
Vol 53 (1) ◽  
pp. 119-141
Author(s):  
Bojan Rupić ◽  
Ljiljana Bonić
Keyword(s):  
Financial Reporting ◽  
Information Needs ◽  
Technological Development ◽  
Financial Statements ◽  
Fair Value ◽  
Fair Value Accounting ◽  
Historical Cost ◽  
Modern Business ◽  
Net Assets ◽  
Value Concept

AbstractInvestors have become the most important users of financial statements in modern business conditions, and mixed base of financial reporting has been established in order to meet their information needs and it includes elements of the concept of historical cost and the fair value concept, with an increasing shift towards the fair value concept. The primary task of fair value accounting becomes the expression of the fair value of the net assets at the reporting date, while the financial results represent the change in fair value of net assets between the two reporting periods. In our country the application of the "full IFRS" is mandatory for large enterprises and the application of IFRS for SMEs is mandatory for small and medium-sized entities, thus fair value accounting becomes an integral part of the financial statements of domestic companies. However, fair value accounting is not a suitable concept for our country characterized by shallow and underdeveloped financial market, companies whose owners are the company managers at the same time, and low level of economic and technological development. A financial statement audit in terms of the use of the fair value concept becomes much more demanding and complex than the audit of the financial statements based on historical cost accounting.

Applying the New Accounting for Business Combinations and Intangible Assets to Partner Admissions

2014 ◽  
Vol 29 (4) ◽  
pp. 527-543 ◽  
Author(s):  
Hugo Nurnberg
Keyword(s):  
Intangible Assets ◽  
Fair Value ◽  
Simple Application ◽  
Business Combinations ◽  
Net Assets

ABSTRACT A long-standing partnership accounting issue is whether to recognize a bonus or goodwill (or other asset write-ups) upon a partner admission when the incoming partner's net asset contribution differs from his/her capital balance. Although extensively discussed in advanced accounting textbooks, that guidance is nonauthoritative, and the authoritative guidance in the FASB Codification makes almost no mention of partner admissions. This paper discusses how changes in GAAP since 2001 affect the accounting for partner admissions, especially the revised accounting for business combinations and intangible assets. It discusses the circumstances when partner admissions are business combinations. For most partner admissions that are business combinations, the partnership should recognize at fair value the net assets contributed by the incoming partner, including identifiable intangible assets and goodwill. For partner admissions that are reverse acquisitions, the partnership should revalue its own identifiable net assets and goodwill to fair value. Finally, for partner admissions that are not business combinations, the partnership should recognize the net assets contributed by the incoming partner, including identifiable and nonidentifiable intangible assets but not goodwill. Importantly, simple application of the bonus or goodwill methods that are illustrated in textbooks does not conform to GAAP for partner admissions that are business combinations.

The winding road to fair value accounting in China: a social movement analysis

2018 ◽  
Vol 31 (4) ◽  
pp. 1257-1285 ◽  
Author(s):  
Kathryn Bewley ◽  
Cameron Graham ◽  
Songlan Peng
Keyword(s):  
Movement Analysis ◽  
Fair Value ◽  
Social Infrastructure ◽  
Fair Value Accounting ◽  
Accounting Standard ◽  
Unsuccessful Attempt ◽  
Content Type ◽  
Conservative Accounting ◽  
Structured Analysis ◽  
Key Resources

Purpose The purpose of this paper is to examine China’s stop-start adoption of fair value accounting (FVA) into its national accounting standards. The paper analyzes how FVA standards promoted by transnational organizations were eventually adopted in China despite its conservative accounting traditions. Design/methodology/approach The study uses archival records and an analytic framework adapted from the studies of social movements to identify the institutional factors that differ between China’ first unsuccessful attempt to adopt FVA and its second successful attempt. Findings Shared interests of elite national and international groups, creation of social infrastructure, marshaling of key resources, and specific actions to frame FVA standards are found to be crucial factors supporting FVA reform in China. Practical implications The study helps advance our understanding of dissemination of international accounting regulations in non-Western societies. The findings can help accounting standard setters to avoid costly failures. Originality/value The study provides a structured analysis of the propagation of global accounting regulations. It exposes the factors in the failure and success of FVA adoption in China.

Fair value accounting from the users’ perspective: an experiment on how financial analysts rely on fair value estimates in their decisions

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Alessandra Allini ◽  
Rosanna Spanò ◽  
Ning Du ◽  
Joshua Ronen
Keyword(s):  
Default Risk ◽  
Financial Analysts ◽  
Fair Value ◽  
Fair Value Accounting ◽  
Accounting Standard ◽  
Content Type ◽  
Historical Cost ◽  
Other Comprehensive Income ◽  
Loan Approval ◽  
Risk Judgments

Purpose The current paper aims to understand whether fair value accounting (FVA) affects analysts’ loan approval decisions and default risk judgments. Design/methodology/approach This study focusses on three issues: unrealized gain or loss resulting from FV measurement recognized in other comprehensive income (OCI), recognition of assets at FV or historical cost and the disclosure or non-disclosure of the FV of collateral assets. It uses an experiment carried out with a sample of 29 CFA analysts. Findings The results show that all three issues have a significant effect on analysts’ judgment and decision-making in processing FV estimates. Originality/value The paper extends knowledge on how financial analysts perceive FV estimates and disclosure and may help the accounting standard boards assess the challenges facing analysts when they apply professional judgments in interpreting FV measurements and disclosures. Moreover, it offers fresh views to the debate on the decision usefulness of FVA, particularly relevant in the post-implementation review of IFRS 13.

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