Accounting Treatment of Goodwill under IFRS in the EU: The impact of enforcement

Abstract

Background and problem: The switch-over from amortization to impairment of goodwill assets led to increased levels of reported goodwill in Sweden. When the US made a similar switch it did not see a similar rise in reported levels of goodwill. The hypothesized reason for this has been the differing severity of enforcement between the countries. This further brought up questions on the success of the harmonization work between the IASB and FASB. Purpose: The primary purpose of this study is to investigate the relationship between enforcement levels and reported goodwill and, by doing so, aiming to show how well goodwill accounting under IFRS has fulfilled the harmonization goals of the IASB. Limitations: The study includes a number of factors that provide relevant explanatory powers to our questions, it is not exhaustive. The generalizability of the study is somewhat limited as it only looks into a small area of goodwill accounting, therefore potentially missing other important factors. Lastly the study is marred by a somewhat incomplete dataset. Methodology: The study uses a quantitative approach to test a number of hypotheses related to enforcement’s effects on reported goodwill levels. The empirical material is primarily secondary, gathered from databases. The study’s sample includes companies from both the EU and the US. The study primarily uses regression analyses to investigate the relationship between goodwill and enforcement. Results and conclusions: The results of the statistical tests were inconclusive in relation to the impact of enforcement on reported goodwill levels. It is however, possible to conclude from the results that there exist significant differences in reported goodwill between countries within the EU. Suggestions for further research: A primary suggestion for future research would likely include applying the notions of enforcement to other aspects of the IFRS regulation. Other more qualitative work, for instance investigating the perceptions of high enforcement levels and their effects on how company’s account for goodwill, might also be of interest. Lastly, a more thorough study investigating the differences in goodwill between the US and EU is likely to be of interest.