C Richard Baker
University of Massachusetts Dartmouth
Robert T. Wearing
University of Essex
Abstract: This paper discusses the recent change in accounting for goodwill under US GAAP and assesses the potential impact of implementing a similar type of change for British companies. Under US GAAP, purchased goodwill will remain on the balance sheet as an asset subject to impairment reviews. But the elimination of goodwill amortisation creates an emerging difference between US GAAP on the one hand, and International Accounting Standards and British accounting standards on the other hand.
We find that goodwill as an asset on the balance sheet is much more significant for intangible economy (IE) companies compared to old economy (OE) companies and we suggest that international accounting standard setters need to address the issues related to the classification of balance sheet intangibles. We also suggest that a move away from amortisation and towards impairment is likely to have a greater (apparently favourable) impact on the financial results of IE companies compared to OE companies.
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