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Running Head: ACCOUNTING FOR GOODWILL 1

ACCOUNTING FOR GOODWILL 4

Impairment or Amortization of Goodwill

Student’s Name

Professor’s Name

Subject

Date

Title of the Article

Impairment or Amortization of Goodwill? An Analysis of CFO Perceptions of Goodwill Accounting.

Author Name

Silvia Ferramosca, PhD, CPA, Department of Economics and Management, University of Pisa.

Journal, and Year Published

The European Management Journal, published in December 2021.

Objective of the Study

Given the ongoing goodwill accounting treatment debate, the study seeks CFOs' views on impairment-only vs amortization strategies. It seeks to contribute to goodwill accounting standard improvement discussions by breaking down CFO preferences by personal, company, and national characteristics.

Theory Used in the Study

The study model integrates accounting concepts, company governance, and financial reporting. It adds to goodwill accounting expertise by expanding the contracting cost framework to include CFO perspectives, economic conditions, ownership structures, accounting culture, and external auditors.

Methodology

The study surveyed 352 global CFOs on LinkedIn. The survey's 352 LinkedIn invitations targeted financial statement preparers for publicly traded and privately held companies, as well as those subject to IFRS or US GAAP. The survey results were analyzed using multivariate and PCA. These methods shed light on the ongoing debate over the optimum goodwill accounting approach, emphasizing the importance of considering a variety of factors from individual to global levels.

The Sample

The study sample included 352 CFOs who prepared financial statements using US GAAP or IFRS. Chief financial officers from private and publicly traded companies gathered from around the world and every industry. This variant gave a complete picture of worldwide goodwill accounting. Using LinkedIn to identify CFOs helped us to access a vast pool of eligible candidates and ensure that those we interviewed had a real say in their firms' financial decisions, allowing us to hear their honest perspectives on the matter.

Main Findings

The study revealed some major CFO attitudes and preferences about goodwill accounting systems. On the other hand, there was a financial sector that favored goodwill impairment testing over amortization, particularly accounting, finance, and auditing officers of chief financial officers seconded this belief. This option dully highlights how education is in their profession.

All the CFOs who take part in the research subscribe to the view that obtaining the balance between the fair value and the actual value of the assets goodwill being at hand shall give stakeholders a complete picture. This shows that in comparison with the visual representation of beer and the result of its consumption, the impairment test is considered to be of greater value in explaining the economics behind the beverage.

The study additionally identified the preferences of CFOs' impairment-only options as impacted by their personalities and the general economic condition of their institution. These selections were the consequences of the doubt in the public of the test reliability of impairment and the role of independent auditors.

Government-operated firms gave more to impairment-only testing compared to other firms. However, this practice may not be without impairment bias thus CFOs from management or distributed ownership organizations have many preferences.

Country-wide, countries with more positive accounting cultures preferred the impairment-only technique. This cultural aspect means that C-suite executives' views on goodwill accounting methodologies are influenced by public perception of national accounting procedures.

Contribution of the Paper

This paper expands the goodwill accounting controversy by bringing forth the fact that most Chief Financial Officers (CFOs) favor the impairment testing approach as opposed to amortization, thus also highlighting this personal, organisational and country factors impinging on this choice selection. This approach assists the regulator and also in setting the standards by recognizing the accounting methods which can be improved.

Personal Insight

A decision about goodwill or amortization? "A Study of Chief Financial Officers’ Perceptions of Goodwill Accounting" examines goodwill from senior financial managers' perspectives. However, division managers and CFOs favor impairment testing over amortization (Firk, et al., 2019). Formally, they include impairment testing to promote shareholder financial transparency. Operational and regulatory environment and culture of enterprises and countries may also affect this choice, and CFOs' personal experience and training may make it inconvenient.

Its thorough study of how financial and accounting education might give chief financial officers skills in this area is noteworthy. Although difficult and complicated, impairment test is a winning option, and most CFOs leave its execution to external auditors. People trust external auditors to keep accounting records to present honest numbers, highlighting their importance in financial reporting.

The LinkedIn poll utilized in the study showed an innovative way to gather financial professionals worldwide. This method confirmed this fact and showed how social media may be used for scholarship. In addition to considering goodwill accounting standard changes, personal competency and a rational grasp of global accounting cultures are important (Firk et al., 2019). Financial reporting helps standard setters and regulators understand CFO and other regulatory preferences, improving goodwill financial reporting.

Reference

Badolato, P. G., Donelson, D. C., & Ege, M. (2014). Audit committee financial expertise and earnings management: The role of status. Journal of accounting and economics, 58(2-3), 208-230.

Bouvatier, V., Lepetit, L., & Strobel, F. (2014). Bank income smoothing, ownership concentration and the regulatory environment. Journal of Banking & Finance, 41, 253-270.

Dechow, P., Ge, W., & Schrand, C. (2010). Understanding earnings quality: A review of the proxies, their determinants and their consequences. Journal of accounting and economics, 50(2-3), 344-401.

Dichev, I. D., Graham, J. R., Harvey, C. R., & Rajgopal, S. (2013). Earnings quality: Evidence from the field. Journal of accounting and economics, 56(2-3), 1-33.

Ferramosca, S., & Allegrini, M. (2021). Impairment or amortization of goodwill? An analysis of CFO perceptions of goodwill accounting. European Management Journal, 39(6), 816-828.

Firk, S., Schmidt, T., & Wolff, M. (2019). CFO emphasis on value-based management: Performance implications and the challenge of CFO succession. Management Accounting Research, 44, 26-43.

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