An Empirical Investigation of Accounting Methods for Goodwill and Identifiable Intangible Assets: 1985 to 1989

Abstract

Accounting for intangible assets represents one of the more controversial accounting standards issues. This study examines the accounting policies adopted for goodwill and for identifiable intangible assets by a sample of 150 Australian Stock Exchange listed companies over the five-year period 1985 to 1989 inclusive. Findings reveal a general decrease in the diversity of goodwill accounting policies over the study period but the converse for identifiable intangible policies. In particular, an increase in the percentage of companies electing not to amortize identifiable intangibles was found. The study provides evidence to support claims that companies have been recognizing identifiable intangibles to reduce the impact on reported operating profits of the requirement of accounting standards for the amortization of goodwill.

The association of identifiable intangible assets acquired and recognised in business acquisitions with postacquisition firm performance

“…This is consistent with the recognition of identifiable intangible assets being labelled an 'opportunistic' accounting policy choice (e.g. Wines and Ferguson, 1993), although it is difficult to distinguish whether this is recognised at the time of purchase or rather arises from management hubris in the acquisition and is realised much later. This also suggests the results in Godfrey and Koh (2001), Ritter and Wells (2006) and Chalmers et al (2008) are likely attributable to internally generated and revalued identifiable intangible assets (Barth and Clinch, 1998).…”

“…Ayers et al, 2002;Su, 2011) and the recognition of identifiable intangible assets in business acquisitions commonly being identified as opportunistic under the prior Australian GAAP (e.g. Wines and Ferguson, 1993;Wines et al, 2007). Hence, this paper seeks to provide evidence on the relation between identifiable intangible assets acquired and recognised in business acquisitions and postacquisition firm performance to determine whether there is empirical support for this regulatory distinction between internally generated and acquired identifiable intangible assets.…”

“…Carnegie and Gibson, 1987), the incentives to recognise identifiable intangible assets rather than goodwill (e.g. Wines and Ferguson, 1993), whether amounts disclosed as identifiable intangible assets and goodwill are value relevant (e.g. Godfrey and Koh, 2001;Ritter and Wells, 2006;Chalmers et al, 2008) and whether identifiable intangible assets are a signalling mechanism (Wyatt, 2005;Wyatt and Matolcsy, 2006;Chalmers et al, 2012).…”

Longitudinal value relevance of earnings and intangible assets: Evidence from Australian firms

“…brands, trademarks) at acquisition to reduce the effect on earnings of goodwill amortization. These firms did not amortize these assets (Wines & Ferguson, 1993). Table 2 presents descriptive statistics for the regression variables in models 1 and 2 over the period from 1975 to 1999.…”

Impairment losses: causes and impacts

“…With regard to goodwill (GW), changes introduced to international reference accounting standards (SFAS 142 and International Financial Reporting Standards (IFRS) 3) in order to replace GW linear amortization by current annual (or more frequently, when there is evidence) impairment analysis led to different positions, whether subject to systematic amortization (associated with the definition of a useful life) or to impairment tests (with the subjectivity associated with future cash flow estimates), so that the adopted measure is consistent with market assessment (Brochet & Welch, 2011;Choi, Kwon, & Lobo, 2000;Jennings, Robinson, Thompson, & Duvall, 1996;Wines & Ferguson, 1993).…”