Has goodwill accounting gone bad?

Kevin K. Li () and Richard G. Sloan ()
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Kevin K. Li: University of California, Riverside
Richard G. Sloan: University of California, Berkeley

Review of Accounting Studies, 2017, vol. 22, issue 2, No 14, 964-1003

Abstract: Abstract Prior to SFAS 142, goodwill was subject to periodic amortization and a recoverability-based impairment test. SFAS 142 eliminates periodic amortization and imposes a fair-value-based impairment test. We examine the impact of this standard on the accounting for and valuation of goodwill. Our results indicate that the new standard has resulted in relatively inflated goodwill balances and untimely impairments. We also find that investors do not appear to fully anticipate the untimely nature of post-SFAS 142 goodwill impairments. Overall, our results suggest that, in practice, some managers have exploited the discretion afforded by SFAS 142 to delay goodwill impairments, thus temporarily inflating earnings and stock prices.

Keywords: Goodwill impairment; SFAS 142; Accounting discretion; Fair value accounting; Resource misallocation (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (46)

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DOI: 10.1007/s11142-017-9401-7

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