THE RELATION BETWEEN ACCOUNTING GOODWILL NUMBERS AND EQUITY VALUES

THE RELATION BETWEEN ACCOUNTING GOODWILL NUMBERS AND EQUITY VALUES JOHN ROBINSON, ROBERT THOMPSON LINDA B. I1 AND DUVALL* INTRODUCTION I n recent years, the accounting treatment for purchased goodwill has been a subject of great controversy in both the United Kingdom and the United States.’ I n the United States, a recent study by the American Accounting Association Committee on Accounting and Auditing Measurement (Barrett et al., 1991) identifies goodwill accounting as an issue that should be reexamined by standard setters. The study recommends recording purchased goodwill as an asset that is reduced in value only when its value is clearly impaired. In the United Kingdom, the Accounting Standards Committee issued Statement of Standard Accounting Practice Exposure Draft 47- Accounting f o r Goodwill in 1990. If adopted, this standard would have required firms to capitalize purchased goodwill and systematically amortize it over a period not to exceed 20 years. The successor standard setting body in the UK, the Accounting Standards Board, effectively ignored the exposure draft by issuing a discussion paper in late 1993 that provides arguments for and against alternative methods of accounting for purchased goodwill. The central issue in these controversies is which accounting treatment for purchased goodwill results in financial statements that best http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Business Finance & Accounting Wiley

THE RELATION BETWEEN ACCOUNTING GOODWILL NUMBERS AND EQUITY VALUES

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Publisher
Wiley
Copyright
Copyright © 1996 Wiley Subscription Services, Inc., A Wiley Company
ISSN
0306-686X
eISSN
1468-5957
DOI
10.1111/j.1468-5957.1996.tb01024.x
Publisher site
See Article on Publisher Site

Abstract

JOHN ROBINSON, ROBERT THOMPSON LINDA B. I1 AND DUVALL* INTRODUCTION I n recent years, the accounting treatment for purchased goodwill has been a subject of great controversy in both the United Kingdom and the United States.’ I n the United States, a recent study by the American Accounting Association Committee on Accounting and Auditing Measurement (Barrett et al., 1991) identifies goodwill accounting as an issue that should be reexamined by standard setters. The study recommends recording purchased goodwill as an asset that is reduced in value only when its value is clearly impaired. In the United Kingdom, the Accounting Standards Committee issued Statement of Standard Accounting Practice Exposure Draft 47- Accounting f o r Goodwill in 1990. If adopted, this standard would have required firms to capitalize purchased goodwill and systematically amortize it over a period not to exceed 20 years. The successor standard setting body in the UK, the Accounting Standards Board, effectively ignored the exposure draft by issuing a discussion paper in late 1993 that provides arguments for and against alternative methods of accounting for purchased goodwill. The central issue in these controversies is which accounting treatment for purchased goodwill results in financial statements that best

Journal

Journal of Business Finance & AccountingWiley

Published: Jun 1, 1996

References

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