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Do Goodwill Impairments By European Firms Provide Useful Information To Investors
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Book Synopsis Do Goodwill Impairments by European Firms Provide Useful Information to Investors? by : Alain Schatt
Download or read book Do Goodwill Impairments by European Firms Provide Useful Information to Investors? written by Alain Schatt and published by . This book was released on 2016 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: In 2004, the IASB adopted the mandatory annual impairment-test-only of goodwill (IAS 36) instead of amortization of goodwill. We present and discuss the academic literature regarding the association between the goodwill impairment, under this new standard, and the revision of investors' expectations about a company's future cash flows. The academic literature highlights that, in some specific cases, IAS 36 may help investors to revise their expectations. More precisely, goodwill impairment seems relevant when: a) there is strong asymmetry of information between managers and investors, b) managers disclose detailed information in the notes regarding their own assumptions about future cash flows, and 3) managers do not manage earnings and provide reliable information to investors. In many cases, goodwill impairment is probably useless for investors because they are able to revise their expectations based on public information, or because they cannot trust the accounting numbers and additional information in the notes about the impairment test, which are provided by (undisciplined) managers. More research is, however, needed to understand in which circumstances impairment-test-only is more useful, as well in which cases it is less adequate. Our analysis relates to the current post-implementation review and should be useful to standard-setters. Before any modification, we argue that standard-setters should carefully consider the economic and the institutional contexts when issuing a new accounting 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 Earnings Quality by : Jennifer Francis
Download or read book Earnings Quality written by Jennifer Francis and published by Now Publishers Inc. This book was released on 2008 with total page 97 pages. Available in PDF, EPUB and Kindle. Book excerpt: This review lays out a research perspective on earnings quality. We provide an overview of alternative definitions and measures of earnings quality and a discussion of research design choices encountered in earnings quality research. Throughout, we focus on a capital markets setting, as opposed, for example, to a contracting or stewardship setting. Our reason for this choice stems from the view that the capital market uses of accounting information are fundamental, in the sense of providing a basis for other uses, such as stewardship. Because resource allocations are ex ante decisions while contracting/stewardship assessments are ex post evaluations of outcomes, evidence on whether, how and to what degree earnings quality influences capital market resource allocation decisions is fundamental to understanding why and how accounting matters to investors and others, including those charged with stewardship responsibilities. Demonstrating a link between earnings quality and, for example, the costs of equity and debt capital implies a basic economic role in capital allocation decisions for accounting information; this role has only recently been documented in the accounting literature. We focus on how the precision of financial information in capturing one or more underlying valuation-relevant constructs affects the assessment and use of that information by capital market participants. We emphasize that the choice of constructs to be measured is typically contextual. Our main focus is on the precision of earnings, which we view as a summary indicator of the overall quality of financial reporting. Our intent in discussing research that evaluates the capital market effects of earnings quality is both to stimulate further research in this area and to encourage research on related topics, including, for example, the role of earnings quality in contracting and stewardship.
Book Synopsis Goodwill Impairment and Corporate Social Responsibility by :
Download or read book Goodwill Impairment and Corporate Social Responsibility written by and published by GRIN Verlag. This book was released on 2020-06-15 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: Case Study 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 given point in time.” Especially the relationship between a firm ́s CSR and its firm performance, earnings quality and information asymmetry has been subject of accounting literature and research. If specific socially responsible actions tend to be negatively correlated with firm performance, managers could be cautious in this area. If, on the other hand, a positive association can be shown to exist, managers might be encouraged to enhance such activities.
Book Synopsis Comparative International Accounting, 14th Edition by : Christopher Nobes
Download or read book Comparative International Accounting, 14th Edition written by Christopher Nobes and published by Pearson UK. This book was released on 2020 with total page 942 pages. Available in PDF, EPUB and Kindle. Book excerpt: Now in its 14th edition, Nobes and Parker's Comparative International Accounting is a comprehensive and coherent text on international financial reporting. It is primarily designed for undergraduate and postgraduate courses in comparative and international aspects of financial reporting. The book explores the conceptual and contextual found.
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 Examining the Patterns of Goodwill Impairments in Europe and the US. by : Paul André
Download or read book Examining the Patterns of Goodwill Impairments in Europe and the US. written by Paul André and published by . This book was released on 2017 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the patterns of goodwill impairments in Europe and in the US over the period from 2006 to 2015, for a sample of more than 35,000 firm-year observations. We define the timeliness of goodwill impairments as the frequency of accounting impairments conditional to indications of economic impairments. We measure indications of economic impairment with three metrics: equity market value minus equity book value less than goodwill, market-to-book smaller than one, and negative EBITDA. Our research strategy leads us to draw very different conclusions than those in the recent EFRAG (2016) study. While median levels of goodwill on the books between US and European firms are relatively similar, we find several indications that US firms recognize timelier impairments, at least during 2008 and 2009, i.e., the early years of the financial crisis. We further document that US impairers write down a much greater percentage of their beginning balance of goodwill than European impairers. During the financial crisis, the median level of impairment by US firms was 63% of opening goodwill in 2008 and 40% in 2009, whereas median European write-downs were only 6% and 7% of goodwill, respectively. Even though European firms are more likely to impair over multiple years, the cumulative impairments never come close to the level of US firms, be it in a single year or cumulative over multiple years. We also find that the frequency of accounting impairment is small compared to the number of firms presenting evidence of economic impairment: only 20 to 25% of firms recognize impairments depending on the measure of economic impairment. This has often been interpreted by academics as a sign of untimely write-offs. Accounting differences between US GAAP and IFRS are unlikely to explain our results. One caveat of our analysis is that it does not allow us to draw conclusions on whether the observed differences between US and European firms are driven by differences in conditional conservatism and/or big bath accounting practices.
Book Synopsis Augmented Corporate Valuation by : Roberto Moro-Visconti
Download or read book Augmented Corporate Valuation written by Roberto Moro-Visconti and published by Springer Nature. This book was released on 2022-04-23 with total page 780 pages. Available in PDF, EPUB and Kindle. Book excerpt: Standard corporate evaluation approaches are improved by trendy innovation, especially as it concerns technological scale up and environmental issues such as digital networking or ESG compliance. Whereas traditional firm appraisal follows institutional guidelines and best practices, frontier research still must define the boundaries of these trendy issues, linking a strong theoretical background to practical advances that still need fine-tuning. This book, written by an academic who is also a senior consultant, combines theoretical rigor with practical insights, providing an innovative framework for researchers, evaluators, managers, and practitioners.
Book Synopsis International Development Bill by : Great Britain. Parliament House of Commons
Download or read book International Development Bill written by Great Britain. Parliament House of Commons and published by . This book was released on 2001-02-16 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Value Relevance of Goodwill Impairments by : Naser M. Abughazaleh
Download or read book The Value Relevance of Goodwill Impairments written by Naser M. Abughazaleh and published by . This book was released on 2014 with total page 11 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using a sample of 528 firm-year observations, drawn from the top 500 UK listed firms for 2005 and 2006, this study employs a multivariate ordinary least squares regression to assess the value relevance of goodwill impairment losses following the adoption of IFRS No. 3 "Business Combinations." Empirical results reveal a significant negative association between reported goodwill impairment losses and market value, suggesting that these impairments are perceived by investors to reliably measure a decline in the value of goodwill and incorporated in their firm valuation assessments. The study provides evidence consistent with IASB's objectives in developing the impairment-only standard and reinforces the argument that, through IFRS 3, managers are more likely to use their accounting discretion to convey privately held information about the underlying performance of the firms.
Book Synopsis Goodwill Impairment by : Caner Akbaba
Download or read book Goodwill Impairment written by Caner Akbaba and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: As it is well known that financial information is useful when it is relevant and represented faithfully what it purposes. In this regard, goodwill which represents both the future benefit expectation and the value attributed to the subsidiary by its parent company in fact, has to be relevant and faithfully reported in the financial statements of the parent company to help the investors and other participants to decide soundly. However, especially in Turkey despite the increase in mergers and acquisitions, compliance in reporting goodwill and impairment analysis was not studied sufficiently. At this point the issues “leaving goodwill write off only to the discretion of company management” and “reporting quality of goodwill and its impairment test” that need to be considered with a great deal in Turkey.As a result of historical evolution of accounting rules and practice, relatively advanced reporting standards on goodwill and impairment of goodwill were set up under IFRS and they are welcomed in most of the countries in the world. However, when we look at the Turkey case, there seems to be some problems in implementation of goodwill related reporting standards especially on impairment of goodwill. This study is limited with companies listed in Borsa Istanbul. Their annual reports that comply fully with IFRS stated between years 2008 and 2014 will be used. Financial figures presented in the annual reports will be compared with the mandatory disclosure requirements for IAS 36.
Book Synopsis The Implications of Goodwill Accounting Methods, Corporate Social Responsibility and Taxes for the Cost of Debt by : Kourosh Amirkhani
Download or read book The Implications of Goodwill Accounting Methods, Corporate Social Responsibility and Taxes for the Cost of Debt written by Kourosh Amirkhani and published by . This book was released on 2021 with total page 124 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation investigates the implications of corporate social responsibility, tax avoidance, and goodwill impairments for debt capital providers. The first essay considers whether corporate social responsibility (CSR) acts as insurance to protect corporate creditors against risks linked to tax avoidance. Risk management theory suggests that CSR generates valueby preserving corporate financial performance. I rely on this theory to hypothesize that CSR mitigates the known positive association between tax avoidance and the cost of debt. The interaction between CSR and tax avoidance is negatively associated with bond yields and is consistent across multiple measures of tax avoidance. At the mean cash effective tax rate, a one standard deviation increase in CSR is, on average, associated with a 2.3 basis-point decrease in bond yields. Positive CSR activities, rather than fewer CSR concerns, drive this result. Overall, the findings suggest that CSR tempers the risks of tax avoidance.My second essay focuses on the implications of goodwill impairments for creditors. On December 16, 2020, the Financial Accounting Standards Board (FASB) announced it intends to eliminate goodwill impairment testing and reintroduce amortization. This decision came after reporting companies voiced complaints about the complexity, costliness, and lack of benefits of the annual impairment testing. Although prior research considers the usefulness of goodwill impairment charges for equity investors, I examine their information content for creditors.I find that goodwill impairment losses are positively associated with bond and loan spreads. Further analysis shows that the occurrence of impairments is associated with higher bond spreads; rather than adjusting interest rates, banks appear to require more stringent covenants. These results are consistent with impairment losses conveying private information about firms' prospects, and creditors respond with adjustments to compensate for the increased risk.Path analysis shows that the effect of goodwill impairments on the cost of debt is mediated by volatility in future profits and volatility in future cash flows. The study results remain consistent after controlling for firm fixed effects and accounting for sample heterogeneity using entropy balancing. Overall, the findings suggest that goodwill impairments send meaningful signals to the credit market pertaining to future financial performance.
Book Synopsis Goodwill Impairment Test Disclosures Under IAS 36 by : Marius Gros
Download or read book Goodwill Impairment Test Disclosures Under IAS 36 written by Marius Gros and published by . This book was released on 2019 with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt: Prior research documented that higher disclosure quality reduces information asymmetry and cost of capital. Accordingly, firms have an incentive to comply with disclosure requirements and to provide voluntary disclosure. However, prior research on mandatory disclosures on goodwill impairment testing reveals low compliance among European firms. In this paper, we contribute to the literature and assist regulators, enforcers and standard setters by shedding light on the determinants of the observed low levels of compliance and voluntary disclosure. Consistent with economic theory, we reveal that firms determine the level of disclosure stra-tegically. We find firms with higher preparation and proprietary cost to show lower compli-ance and less voluntary disclosure while firms with higher growth opportunities provide better compliance and more voluntary disclosure. However, the strategic behavior is constrained by enforcement. Consequently, our results are more (less) pronounced within a weak (strong) enforcement environment.
Book Synopsis Step Zero by : Katharine Wright Adame
Download or read book Step Zero written by Katharine Wright Adame and published by . This book was released on 2019 with total page 55 pages. Available in PDF, EPUB and Kindle. Book excerpt: I examine the use of qualitative versus quantitative impairment testing methods and their differential implications for future impairments and goodwill valuation. Using hand-collected data, I find that the likelihood of reliance on a qualitative assessment is decreasing in both the complexity of goodwill and the risk of an underlying goodwill impairment. I also find that the likelihood of large future goodwill impairments is lower on average for firm-years in which the firm relies on a qualitative assessment. Finally, I investigate investor perceptions of this choice and find evidence that investors place a premium on goodwill when firms rely on a qualitative assessment versus a quantitative test. This finding suggests that investors perceive a firm's goodwill impairment testing method choice as reflective of management's private information. Overall, results suggest that managers are not using the discretion in ASU 2011-08 opportunistically, which was a concern in implementing this new standard.
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 Accounting and Valuation Guide by : AICPA
Download or read book Accounting and Valuation Guide written by AICPA and published by John Wiley & Sons. This book was released on 2016-11-07 with total page 176 pages. Available in PDF, EPUB and Kindle. Book excerpt: This new guide provides accounting and valuation guidance for impairment testing of goodwill. Specifically, it focuses on practice issues related to the qualitative assessment and the first step of the two-step test. This resource is a valuable tool for auditors, accountants and valuation specialists seeking an advanced understanding of the accounting, valuation, and disclosures related to goodwill impairment testing (including the qualitative assessment). It is also a vital resource for preparers of financial statements of public and private companies that follow FASB guidance on goodwill.
Book Synopsis Informativeness of Discretionary Disclosures of Goodwill Slack by : Nicole Thorne Jenkins
Download or read book Informativeness of Discretionary Disclosures of Goodwill Slack written by Nicole Thorne Jenkins and published by . This book was released on 2016 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: Recently, the SEC's Division of Corporation Finance (CorpFin) has added an additional guidance to its Financial Reporting Manual (FRM) with respect to the disclosure for goodwill. For firms at a risk of failing the step one of goodwill impairment test, this guidance recommends that firms consider reporting the percentage by which the fair value exceeds carrying values of the reporting unit -- slack -- when the fair value is not substantially in excess of carrying value. This CorpFin guidance does not specifically identify what is meant by substantially in excess. We examine the consequences of this disclosure guidance and find evidence consistent with the FRM's perceived goal: investors and analysts seem to be able to better predict future goodwill impairments for firms disclosing lower slack levels. These results suggest that information conveyed through slack disclosures has led to an increase in the quality of information available to investors regarding future impairment of goodwill.
