Fair Value Accounting for Goodwill Under IFRS: An Exploratory Study of the Comparability in France, Germany, and the United Kingdom

Paananen, Mari

doi:10.2139/ssrn.1275803

Cited by 17 publications

(26 citation statements)

References 30 publications

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“…Specifically, it investigates whether there is a systematic difference in goodwill's valuation effects between companies with relatively high and relatively low levels of compliance with IFRS mandatory disclosure requirements for goodwill. Although prior studies (Paananen, 2008;Tsalavoutas & Dionysiou, 2013) have shown that the valuation of balance sheet items at an aggregated level (that is, the book value of equity) does not differ between companies that comply with IFRS disclosure requirements to greater and lesser extents, there are reasons to believe that specific balance sheet items that are heavily influenced by FVA might have a different attitude due to the particular importance of these items' disclosures. Among accounting items heavily influenced by FVA, explanatory disclosures are of high importance because the accounting treatment of these items does not follow detailed rules, being based to a large extent on managerial decisions, which have to be justified.…”

Section: H1: Purchased Goodwill Under Ifrs Is Value Relevantmentioning

confidence: 95%

“…The only studies examining this issue are those of Paananen (2008) and Tsalavoutas and Dionysiou (2013). Both studies attempt to examine whether different levels of disclosure are associated with different levels in the value relevance of income and of book value of equity.…”

Section: H1: Purchased Goodwill Under Ifrs Is Value Relevantmentioning

confidence: 99%

“…The findings of both studies indicate that there is a significant difference in the value relevance of income but no difference in the value relevance of book value of equity. Specifically, the study of Paananen (2008), despite examining disclosures related to goodwill, does not attempt to associate them with goodwill's value relevance. Moreover, although the study of Tsalavoutas and Dionysiou (2013) examines the disclosures of almost all IFRS, it does not provide insights into the relationship between the volume of specific standards' disclosures and the value relevance of specific accounting numbers, e.g., IFRS 3 and IAS 36 disclosures with goodwill.…”

Section: H1: Purchased Goodwill Under Ifrs Is Value Relevantmentioning

confidence: 99%

“…Some European evidence shows that the value relevance of net income is significantly higher for companies that comply highly with IFRS disclosure requirements than for those that do not (Paananen, 2008;Tsalavoutas & Dionysiou, 2013). On the contrary, the same studies find that the value relevance of balance sheet items at an aggregated level (that is, the book value of shareholders' equity) does not differ between companies that comply with IFRS disclosure requirements to a greater extent and those that comply to a lesser extent.…”

Section: Introductionmentioning

confidence: 98%

See 3 more Smart Citations

Goodwill under IFRS: Relevance and disclosures in an unfavorable environment

Baboukardos

Rimmel

2014

Accounting Forum

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The accounting treatment of purchased goodwill under IFRS has been severely criticized due to the extensive use of fair value accounting. The purpose of this study is to enrich the ongoing debate upon this issue by drawing attention to the market valuation implications of goodwill in a country outside the Anglo-Saxon accounting paradigm, where the application of fair value accounting has been seen as more problematic. The results indicate that, in the case of purchased goodwill, fair value accounting generates relevant accounting numbers but only in companies that comply highly with IFRS disclosure requirements.

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Section: H1: Purchased Goodwill Under Ifrs Is Value Relevantmentioning

confidence: 95%

Section: H1: Purchased Goodwill Under Ifrs Is Value Relevantmentioning

confidence: 99%

Section: H1: Purchased Goodwill Under Ifrs Is Value Relevantmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 98%

See 2 more Smart Citations

Goodwill under IFRS: Relevance and disclosures in an unfavorable environment

Baboukardos

Rimmel

2014

Accounting Forum

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“…There are two views of the consequences of fair value accounting of unverifiable assets (Paananen, 2008). One view is that discretion inherent in fair value estimates provides the management of companies with an opportunity to disclose private information to investors, lowering information asymmetry.…”

Section: Fair-value Accounting Issues Related To the "Full-goodwill Mmentioning

confidence: 99%

Full-Goodwill Method of Accounting for Business Combinations and Quality of Financial Statements

Welc¹

2015

JMAA

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Accounting goodwill arises as a result of business combinations and appears in a consolidated balance sheet of an acquirer. It is an intangible asset which reflects an excess of value of an acquired business as a whole over a summed value of its identifiable net assets. Since 2010, the International Financial Reporting Standards (IFRS) allow for two alternative methods of measuring goodwill in those business combinations, where an acquirer obtains a control over a target company without obtaining 100% share in its shareholder's equity. Under one of these methods, which is called a "full-goodwill method", the goodwill attributable to non-controlling interests in subsidiary is measured at fair value. Thus, the main accounting problem with this method lies in its requirement to estimate the fair value of non-controlling interests. This paper suggests that the "full-goodwill method" may sacrifice financial statement reliability for its alleged relevance, with significant potential for "creative accounting".The problems with reliability and transparency of financial statements, when "full-goodwill method" is applied, are illustrated by a real-life example of the takeover of Formula Systems Ltd. by Asseco Group (one of the biggest IT companies in Europe, listed on the Warsaw Stock Exchange).

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Product market competition, stock price informativeness, and IFRS adoption: evidence from Europe

Wang

Forst

2020

Rev Quant Finan Acc

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This study examines whether and how policy changes that aim to improve market efficiency, specifically the mandatory adoption of International Financial Reporting Standards (IFRS), influence the relation between product market competition and stock price informativeness. Using a sample of European firms, we find a negative association between product market competition and stock price informativeness as evidenced by larger (smaller) stock price changes surrounding earnings announcements for firms facing more (less) product market competition. These findings are consistent with prior studies examining the U.S. capital market. We further find that IFRS adoption alleviates the negative association. This positive effect is more pronounced among firms domiciled in countries with stronger legal enforcement and among smaller firms. Our results provide insights into the interrelation between product and capital markets in the European setting. More importantly, our results highlight the importance of policy changes, which aim to improve market efficiency, in influencing the relation between the two markets and document the benefit of IFRS adoption in mitigating the negative competition-informativeness relation.

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Fair Value Accounting for Goodwill Under IFRS: An Exploratory Study of the Comparability in France, Germany, and the United Kingdom

Cited by 17 publications

References 30 publications

Goodwill under IFRS: Relevance and disclosures in an unfavorable environment

Goodwill under IFRS: Relevance and disclosures in an unfavorable environment

Full-Goodwill Method of Accounting for Business Combinations and Quality of Financial Statements

Product market competition, stock price informativeness, and IFRS adoption: evidence from Europe

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