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The Information Content Of Goodwill Impairments And The Adoption Of Sfas 142
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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 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 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 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 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 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.
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 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 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 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 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 Accounting for Goodwill by : Jessica Cruz
Download or read book Accounting for Goodwill written by Jessica Cruz and published by . This book was released on 2019 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: Prior to the implementation of FAS 142 in 2002, goodwill was amortized annually. Now, companies with goodwill on their books must test it annually for impairment. This paper examines the effectiveness of goodwill amortization and impairment of goodwill both before and after the adoption of FAS 142 by analyzing their effect on abnormal stock returns. My results regarding the effect of goodwill amortization on stock returns are inconsistent, suggesting that goodwill amortization is not useful in determining the value of a company. My results also suggest that the stock market anticipates goodwill impairments before they are announced.
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 Discretionary Behavior with Respect to the Adoption of SFAS 142 and the Behavior of Security Prices by : Yoonseok Zang
Download or read book Discretionary Behavior with Respect to the Adoption of SFAS 142 and the Behavior of Security Prices written by Yoonseok Zang and published by . This book was released on 2003 with total page 206 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Evidence on the Use of Unverifiable Estimates in Required Goodwill Impairment by : Karthik Ramanna
Download or read book Evidence on the Use of Unverifiable Estimates in Required Goodwill Impairment written by Karthik Ramanna and published by . This book was released on 2012 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: SFAS 142 requires managers to estimate the current fair value of goodwill to determine goodwill write-offs. In promulgating the standard, the FASB predicted managers will, on average, use the fair value estimates to convey private information on future cash flows. The current fair value of goodwill is unverifiable because it depends in part on management's future actions (including managers' conceptualization and implementation of firm strategy). Thus, agency theory predicts managers will, on average, use the discretion in SFAS 142 consistent with private incentives. We test these hypotheses in a sample of firms with market indications of goodwill impairment. Our evidence, while consistent with some agency-theory derived predictions, does not confirm the private information hypothesis.
Book Synopsis Evidence from Goodwill Non-impairments on the Effects of Using Unverifiable Estimates in Financial Reporting by : Karthik Ramanna
Download or read book Evidence from Goodwill Non-impairments on the Effects of Using Unverifiable Estimates in Financial Reporting written by Karthik Ramanna and published by . This book was released on 2009 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: SFAS 142 requires managers to estimate reporting unit values to determine goodwill write-offs. Those estimates often use unverifiable discounted-future-cash-flows providing managers with more discretion than historically afforded in financial reporting. Ex post, managers can claim their unit value estimates were not realized due to factors outside their control, claims that are difficult to objectively falsify. In promulgating SFAS 142, standard setters assume managers, on average, use unverifiable discretion to convey private information on future cash flows; in contrast, agency theory predicts managers, on average, use unverifiable discretion opportunistically. We test these alternative hypotheses using a sample of firms with market indications of goodwill impairment. Our evidence, while consistent with agency theory, does not confirm the private information hypothesis.
