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Fair value accounting and intangible assets

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  • Suntharee Lhaopadchan

Abstract

Purpose - Advocates of greater intangible asset reporting frequently make the criticism that the published financial statements of companies do not adequately reflect the value of intangible assets and hence provide potentially misleading information to the users of the financial statements. The purpose of this paper is to evaluate whether since the introduction of “fair value accounting,” particularly in respect of the treatment of acquired “goodwill” shown on consolidated balance sheets, these criticisms retain any validity. The paper investigates the extent to which it can be confidently asserted that the recognition of acquired goodwill and the post‐acquisition rules for recognizing any goodwill “impairment” has materially improved the information available to the users of financial statements and/or whether these developments have resulted largely in providing self‐interested managers with greater opportunities to engage in earnings and balance sheet manipulations that are of doubtful value to users. Design/methodology/approach - The paper critically reviews the rules and the intentions of accounting policy makers in relation to fair value acquisition accounting and evaluates the empirical evidence relating to corporate behavior in this area. Findings - Despite the presumed benefits associated with fair value accounting, it is shown that in practice managerial self‐interests and earnings management concerns appear to motivate many goodwill impairment decisions. However, as investors and analysts have always had the option to adjust, or indeed totally ignore, reported accounting numbers it is far less certain whether this reporting behavior actually misleads users or significantly reduces the information content (reliability and relevance) of the financial statements. Originality/value - The paper provides an overview of the accounting treatment and reporting consequences associated with the introduction of fair value accounting in respect of acquired goodwill.

Suggested Citation

  • Suntharee Lhaopadchan, 2010. "Fair value accounting and intangible assets," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 18(2), pages 120-130, May.
    • Handle: RePEc:eme:jfrcpp:v:18:y:2010:i:2:p:120-130
    DOI: 10.1108/13581981011033989
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    Cited by:

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    2. Alessandro Mechelli & Riccardo Cimini, 2021. "The effect of corporate governance and investor protection environments on the value relevance of new accounting standards: the case of IFRS 9 and IAS 39," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 25(4), pages 1241-1266, December.
    3. Jimi Siekkinen, 2017. "Board characteristics and the value relevance of fair values," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 21(2), pages 435-471, June.
    4. Cristina-Ionela Fădur & Marilena Mironiuc, 2012. "The Paradox Of Goodwill: Why Do We Pay More Than The Fair Value? Study On Romanian Companies," Anale. Seria Stiinte Economice. Timisoara, Faculty of Economics, Tibiscus University in Timisoara, vol. 0, pages 213-220, November.
    5. Nicola Giuseppe Castellano & Katia Corsi & Roberto Del Gobbo, 2015. "Goodwill Disclosure in Europe. Profiles of disclosing companies," Eastern European Business and Economics Journal, Eastern European Business and Economics Studies Centre, vol. 1(2), pages 32-65.
    6. Cristina-Ionela Fadur & Daniela Ciotina, 2011. "Is The Future Of Accounting Compatible With The Accounting Of The Future?," CES Working Papers, Centre for European Studies, Alexandru Ioan Cuza University, vol. 3(1), pages 55-63, March.
    7. Kimouche Bilal, 2022. "Intangible Assets, Goodwill and Earnings Management: Evidence from France and the Uk," Folia Oeconomica Stetinensia, Sciendo, vol. 22(1), pages 111-129, June.
    8. Wen, He & Moehrle, Stephen R., 2016. "Accounting for goodwill: An academic literature review and analysis to inform the debate," Research in Accounting Regulation, Elsevier, vol. 28(1), pages 11-21.
    9. George Emmanuel Iatridis & Daniel Senftlechner, 2014. "An Empirical Investigation of Goodwill in Austria: Evidence on Management Change and Cost of Capital," Australian Accounting Review, CPA Australia, vol. 24(2), pages 171-181, June.
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    11. Lionel Escaffre & Réda Sefsaf, 2013. "L'impact de l'évaluation IFRS des écarts d'acquisition sur la gestion des résultats : Cas de la France et du Royaume-Uni," Post-Print hal-00996787, HAL.

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