American Accounting Association 2006 Midwest Region Meeting March 30 – April 1 Chicago, Illinois

Friday, March 31, 10:20 a.m.-12:00 noon
Concurrent session 2B - Business Combinations (Financial Accounting and Reporting)

Title: Goodwill Testing and Earnings under SFAS 142

Arnold R. Cowan Iowa State University	William N. Dilla Iowa State University
Cynthia Jeffrey Iowa State University

ABSTRACT: This study examines the underlying motivations of goodwill write-downs after adoption of Statement of Financial Accounting Standards 142 (SFAS 142), Goodwill and Other Intangible Assets [FASB 2001b]. We examine Goodwill impairments in the first year that the new statement is in effect when companies that recognized an impairment in Goodwill accounted for the charge as a change in accounting principle. Recognition of asset impairments is likely to be a function of both economic factors and reporting incentives. The results indicate that while economic performance is a determinant of goodwill impairment charges and write-ups, there is evidence of earnings management as well. This suggests that the discretion allowed in SFAS 142 is sufficient to allow management to manipulate write-down amounts.

Back to the program