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Changes in the value relevance of goodwill accounting following the adoption of IFRS 3

Mattias Hamberg and Leif-Atle Beisland

Journal of International Accounting, Auditing and Taxation, 2014, vol. 23, issue 2, 59-73

Abstract: This study examines the value relevance effects of changes in goodwill accounting in a European setting. International Financial Reporting Standard (IFRS) 3 replaced accounting rules that emphasized goodwill amortization over short useful lives which kept goodwill balances low. Goodwill accounting under IFRS 3 largely relies on manager fair value estimates of acquired business units. Using Swedish data, we show that goodwill amortizations were not value-relevant prior to the adoption of IFRS 3. However, impairments reported in addition to amortization were significantly related to stock returns during that period. In contrast, under the impairment-only regime prescribed by IFRS 3, impairments are no longer statistically related to stock returns.

Keywords: Financial reporting; Goodwill accounting; Value relevance; IFRS 3; SFAS 142 (search for similar items in EconPapers)
JEL-codes: M41 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1016/j.intaccaudtax.2014.07.002

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