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Has Sfas 142 Improved The Usefulness Of Goodwill Impairment Loss And Goodwill Balances For Investors
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Book Synopsis Has SFAS 142 Improved the Usefulness of Goodwill Impairment Loss and Goodwill Balances for Investors? by : Lale Guler
Download or read book Has SFAS 142 Improved the Usefulness of Goodwill Impairment Loss and Goodwill Balances for Investors? written by Lale Guler and published by . This book was released on 2016 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: Due to the concerns about the annual SFAS 142 impairment test, the FASB has recently added a project to its technical agenda to evaluate potential alternatives for measurement of goodwill. Motivated by the FASB's consideration of a change in goodwill accounting, I examine the impact of SFAS 142 on the usefulness of goodwill write-offs and goodwill balances. I find that goodwill write-offs and goodwill balances are more strongly associated with stock returns and stock prices respectively after SFAS 142 than before SFAS 142. Furthermore, in the post-SFAS 142 period, I find that the association between stock prices and goodwill is lower for firms that avoid the recognition of the existing goodwill impairments, and that goodwill write-offs are more negatively associated with stock returns for firms where managers have more discretion over the impairment testing process. Overall, the findings suggest that despite the concerns of critics over the reliability of fair value estimates of goodwill, (i) SFAS 142 has improved the usefulness of goodwill numbers from investor perspective, and (ii) investors see through the differences in reliability of reported goodwill numbers. These results have implications for standard-setting as the FASB considers new alternatives for goodwill accounting.
Book Synopsis Functional Fixation Surrounding the Adoption of SFAS 142 by : George Wilson
Download or read book Functional Fixation Surrounding the Adoption of SFAS 142 written by George Wilson and published by . This book was released on 2013 with total page 15 pages. Available in PDF, EPUB and Kindle. Book excerpt: Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangibles (FASB 2001) altered the treatment of goodwill by replacing the systematic amortization of goodwill with impairment testing. This change affected earnings in two ways by requiring many firms to take sizable goodwill impairments if they cannot justify the amount of goodwill being carried on their balance sheets and by producing a “cosmetic” boost to the earnings of all firms who previously amortized goodwill. This study investigates whether investors assign value relevance to adoption-year goodwill impairments and to the increase in earnings resulting from goodwill non-amortization. Furthermore, this study investigates whether the assigned value relevance is due to new information content or due to functional fixation. Results indicate that unsophisticated investors functionally fixate on earnings while sophisticated investors do not, and that investors find value relevant information in goodwill impairments.
Book Synopsis The Information Content and Timeliness of SFAS 142 Goodwill Impairments by : Tamas Papp
Download or read book The Information Content and Timeliness of SFAS 142 Goodwill Impairments written by Tamas Papp and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: With the introduction of SFAS 142 and the impairment of goodwill, the FASB aimed to improve financial reporting by producing accounting numbers that reliably reflect the underlying economics of the asset. The board thereby predicted that write-offs under the new standard will provide investors with useful and timely information. The evidence in this thesis shows that the expectations of the FASB are not met. First, goodwill impairments do not trigger significant market reactions, indicating that they convey no new information about the asset. Second, stock returns in the year preceding a goodwill impairment are associated with the upcoming accounting loss, which implies that the formal recognition of write-offs lags at least one year behind the real economic deterioration of the asset. Furthermore, it is showed that investors are able to anticipate goodwill impairments using fundamental and market indicators, particularly the relative magnitude of goodwill and stock returns. Overall, the evidence provides support for the critics of SFAS 142, who find that managers opportunistically delay the announcement of goodwill write-offs motivated by their private incentives.
Book Synopsis The Information Content of Goodwill-Impairments Under Fas 142 by : Wolfgang Schultze
Download or read book The Information Content of Goodwill-Impairments Under Fas 142 written by Wolfgang Schultze and published by . This book was released on 2011 with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt: With its standards FAS 141 and 142 the Financial Accounting Standard Board has revolutionized the accounting for business combinations. One of the major changes is the abolishment of goodwill-amortization, which has been replaced by an annual impairment test at the level of a reporting unit. Among other things, this new regulation is intended to improve the information content of goodwill accounting. This paper investigates into the information content of such an impairment from the perspective of external or internal financial analysis. I examine how impairment losses resulting from FAS 142 should be interpreted and treated in the internal and external performance analysis. My analysis shows that an impairment can be due to several reasons, not just to a deteriorating economic performance. In particular, the way the impairment test is conducted according to FAS 142 may even lead to a discrimination of economically viable investment projects.
Book Synopsis Goodwill Impairment by : Thorsten Sellhorn
Download or read book Goodwill Impairment written by Thorsten Sellhorn and published by Peter Lang Pub Incorporated. This book was released on 2004 with total page 323 pages. Available in PDF, EPUB and Kindle. Book excerpt: In 2001, goodwill amortization in the US was eliminated in favor of an impairment-only approach, which, according to critics, gives managers vast discretion and opportunities for earnings management. Prior research suggests that discretionary asset write-offs are associated with economic factors and managers_ financial reporting objectives. Based on a systematic literature review, this study investigates for a comprehensive sample of US firms the determinants of goodwill write-off behavior. Regression analysis shows that write-off behavior is significantly explained by firms_ economic properties. Only in large, high-profile firms, incentives appear to be significant determinants. These findings suggest that the impairment-only approach does capture goodwill impairment at least to some extent.
Book Synopsis Has Goodwill Accounting Under SFAS 142 Improved Financial Reporting? by : Dennis J. Chambers
Download or read book Has Goodwill Accounting Under SFAS 142 Improved Financial Reporting? written by Dennis J. Chambers and published by . This book was released on 2007 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: SFAS 142 made two significant changes to goodwill accounting. First, firms are required to annually test goodwill for impairment. Second, firms are prohibited from systematically amortizing goodwill. In this study, I test whether each of these changes resulted in improved financial reporting, as predicted by the FASB. I find evidence that annual impairment testing improves financial reporting. However, I also find evidence that elimination of systematic amortization reduced the quality of financial reporting. As additional analysis, I demonstrate that a goodwill accounting system that allows both annual impairment testing and systematic amortization, while allowing firms the discretion to choose a firm-specific mix of each, provides the most value relevant goodwill accounting numbers.
Book Synopsis Goodwill Valuation Effects of the Initial Adoption of SFAS 142 by : Changling Chen
Download or read book Goodwill Valuation Effects of the Initial Adoption of SFAS 142 written by Changling Chen and published by . This book was released on 2010 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the initial adoption of Statement of Financial Accounting Standards no. 142, Goodwill and Other Intangible Assets, (SFAS 142). Using a sample of firms reporting goodwill at yearend 2001, we provide evidence on the timeliness and value relevance of the reported goodwill and goodwill impairments subsequent to the adoption of SFAS 142. Our results indicate that the adoption impairment was partially impounded in prices prior to 2002 and also represented new information to the market in 2002. The subsequent year 1 impairment primarily provides new information to the market (although some of the impairment is anticipated in the prior year). We also report increased value relevance associated with the adoption of SFAS 142. Our evidence documents a net benefit associated with SFAS 142 and is consistent with the FASB's objectives in promulgating the new standard.
Book Synopsis Facts and Issues About Goodwill Impairment Losses in SFAS No. 142 Adoption Year by : Kang Cheng
Download or read book Facts and Issues About Goodwill Impairment Losses in SFAS No. 142 Adoption Year written by Kang Cheng and published by . This book was released on 2008 with total page 16 pages. Available in PDF, EPUB and Kindle. Book excerpt: For most companies, fiscal year 2002 was the adoption year for Statement of Financial Accounting Standard (SFAS) No. 141: Business Combinations and No. 142: Goodwill and Other Intangible Assets. This article analyzes financial statements reported under the new rules and reaches the following conclusions: 1). In the adoption year, the impacts on reported earnings can be deep, but uneven across firms; some companies show dramatic negative impacts while most companies show mild positive impacts. 2). Measurement and disclosure of goodwill's fair value, and the basis for impairment losses, when necessary, becomes more technical and more demanding on statement users. 3). Goodwill fair value impairment losses take place across industries and do not seem to be related to industry economic performance. Overall, under the new rules, goodwill as an asset on the accounting book is more challenging and less predictable.
Book Synopsis The Information Content of Goodwill Impairments and the Adoption of SFAS 142 by : Daniel A. Bens
Download or read book The Information Content of Goodwill Impairments and the Adoption of SFAS 142 written by Daniel A. Bens and published by . This book was released on 2007 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: As U.S. accounting standard setters increasingly favor a fair value based regime, critics claim that the abandonment of a historical cost based system may produce unintended consequences, such as increased bias and manipulation in financial reports. In this paper, we present exploratory evidence to this debate by examining whether changing the intangible asset impairment trigger to a fair value test, as codified in Statement of Financial Accounting Standards No. 142: Goodwill and Other Intangibles Assets (SFAS 142), altered the information content of goodwill write-offs. We document a negative and significant stock market reaction to unexpected goodwill write-offs. On a cross-sectional basis, we find that the market reaction is attenuated for firms with low information asymmetry (our proxy is a high analyst following) and for firms who find it relatively costly to implement impairment tests (our proxy is the inverse of firm size). We find no variation in market reaction based on firm complexity (our proxy is the number of firm segments). The negative reaction for the high information asymmetry firms does not persist following the adoption of SFAS 142. The latter result is consistent with SFAS 142 critics' claims that fair value methods are difficult to implement reliably, and thus can reduce the information content of accounting reports.
Book Synopsis Causes and Consequences of Transitional Goodwill Impairment Losses by : Pascale Lapointe
Download or read book Causes and Consequences of Transitional Goodwill Impairment Losses written by Pascale Lapointe and published by . This book was released on 2006 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Market Reaction to Goodwill Impairments by : Thorsten Knauer
Download or read book Market Reaction to Goodwill Impairments written by Thorsten Knauer and published by . This book was released on 2015 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the information content of goodwill write-downs under International Accounting Standard (IAS) 36 (Impairment of Assets) and Statement of Financial Accounting Standards (SFAS) No. 142. We investigate whether the informational value depends on the reliability of the news. Using a sample of 564 goodwill write-down announcements issued from 2005 to 2009, we find a negative capital market reaction to announcements of unexpected goodwill write-offs. Our results indicate that investors react more negatively when a country's level of legal protection is low and allows more management discretion. We further report that market reaction is associated with managers explaining the write-down decision and depends on the verifiability of these explanations. Investors react more negatively when an unverifiable internal explanation is given and less negatively when a verifiable external explanation is provided. We do not find significant differences between write-down announcements under SFAS 142 and IAS 36.
Book Synopsis The Analysis and Use of Financial Statements by : Gerald I. White
Download or read book The Analysis and Use of Financial Statements written by Gerald I. White and published by John Wiley & Sons. This book was released on 2002-12-30 with total page 786 pages. Available in PDF, EPUB and Kindle. Book excerpt: Accounting Standards (US and International) have been updated to reflect the latest pronouncements. * An increased international focus with more coverage of IASC and non-US GAAPs and more non-US examples.
Book Synopsis Goodwill Impairment Charges Under SFAS 142 by : Lale Guler
Download or read book Goodwill Impairment Charges Under SFAS 142 written by Lale Guler and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines factors that influence managers' choice to recognize goodwill impairment under Statement of Financial Accounting Standards No. 142 (SFAS 142). The debate surrounding SFAS 142's effectiveness centered on whether the managerial discretion allowed by the standard could lead to biased decisions in managers' determination of goodwill impairment. I use a conditional logistic regression to compare 130 firms that did recognize the existing impairment losses (write-off firms) to a control sample of 130 matching firms that did not recognize the existing impairment losses (no write-off firms). I find that the likelihood of recognizing the existing impairment losses significantly decreases when the managers have sizable holdings of in-the-money stock options. On the other hand, the likelihood of recognizing the existing impairment losses significantly increases when firms have stronger corporate governance, as measured by percentage of outside directors, percentage of outside directors' ownership, number of busy directors, and separation of CEO and Chair titles. Additionally, I find that during the period leading up to the SFAS 142 write-off, there have been more favorable changes in corporate governance structures of the writeoff firms, compared to that of no write-off firms. These favorable changes in governance structures occurred to a greater extent in firms that have delayed the recognition of existing impairment losses to the sample period compared to the firms that have been recognizing the write-offs on a timely basis. These results are consistent with the notion that favorable changes in corporate governance induce firms to take SFAS 142 impairment losses, which managers have avoided taking in the prior period. Overall, the results imply that managerial incentives do affect the implementation of standards that expand managerial discretion and highlight the importance of corporate boards in the monitoring of discretion allowed by such standards.
Book Synopsis Goodwill Impairment and Corporate Social Responsibility by : Anonym
Download or read book Goodwill Impairment and Corporate Social Responsibility written by Anonym and published by . This book was released on 2020-05-16 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: Seminar paper from the year 2019 in the subject Business economics - Accounting and Taxes, grade: 2,3, University of Bremen, language: English, abstract: The issue goodwill impairment is controversially discussed in practice and in literature because goodwill or rather the amount of goodwill which has to be impaired primarily based on managerial assumptions and proprietary information and further the recognition and accurate measurement is not easy and thus often not free from error. Therefore the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) require firms to disclose specific information on how and why goodwill arises in business combinations. Goodwill accounting is intended to provide information on the financial consequences of mergers and acquisitions. It is therefore potentially very important for recipients of annual financial statements. Goodwill accounting in Europe is generally regulated in the International Financial Reporting Standard 3 (IFRS 3) Business Combinations and International Accounting Standard 36 (IAS 36) Impairment of Assets. Goodwill accounting in the US is regulated in Accounting Standards Codification 805 (ASC 805) Business Combinations (formally known as Statement of Financial Accounting Standards No. 141 (SFAS 141)) and ASC 350 Goodwill and other Intangible Assets (formally known as SFAS 142). Goodwill is defined as an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognised. Besides goodwill impairment, Corporate Social Responsibility (CSR) activities has become another steadily increasing issue around the world and has gained significance in the view of public policy and management practice. CSR is often defined as "the social responsibility of business encompasses the economic, legal, ethical and discretionary expectations that society has of organizations at a giv
Book Synopsis Does Big Bath Improve Financial Reporting Quality? the Evidence from Goodwill Impairment Under SFAS 142 by : 楊蕙如
Download or read book Does Big Bath Improve Financial Reporting Quality? the Evidence from Goodwill Impairment Under SFAS 142 written by 楊蕙如 and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis A Rational Expectations Approach to Macroeconometrics by : Frederic S. Mishkin
Download or read book A Rational Expectations Approach to Macroeconometrics written by Frederic S. Mishkin and published by University of Chicago Press. This book was released on 2007-11-01 with total page 184 pages. Available in PDF, EPUB and Kindle. Book excerpt: A Rational Expectations Approach to Macroeconometrics pursues a rational expectations approach to the estimation of a class of models widely discussed in the macroeconomics and finance literature: those which emphasize the effects from unanticipated, rather than anticipated, movements in variables. In this volume, Fredrick S. Mishkin first theoretically develops and discusses a unified econometric treatment of these models and then shows how to estimate them with an annotated computer program.
Book Synopsis Do Firms Manage Fair Value Estimates? An Examination of SFAS 142 Goodwill Impairments by : Henry Jarva
Download or read book Do Firms Manage Fair Value Estimates? An Examination of SFAS 142 Goodwill Impairments written by Henry Jarva and published by . This book was released on 2009 with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt: I find that goodwill write-offs under Statement of Financial Accounting Standards No. 142 (SFAS 142) are associated with future expected cash flows as mandated by the standard. However, there are indications that goodwill write-offs lag behind the economic impairment of goodwill. Additional analysis reveals that the association between goodwill write-offs and future cash flows is insignificant for firms with contemporaneous restructuring. I hypothesize that this finding is due to agency-based motives. Finally, I examine a sample of non-impairment firms in which there are indications that goodwill is impaired. I fail to find convincing evidence that these firms are opportunistically avoiding impairments.
