Has Goodwill Accounting Under SFAS 142 Improved Financial Reporting?

46 Pages Posted: 26 Dec 2006

Date Written: April 2007


SFAS 142 made two significant changes to goodwill accounting. First, firms are required to annually test goodwill for impairment. Second, firms are prohibited from systematically amortizing goodwill. In this study, I test whether each of these changes resulted in improved financial reporting, as predicted by the FASB. I find evidence that annual impairment testing improves financial reporting. However, I also find evidence that elimination of systematic amortization reduced the quality of financial reporting. As additional analysis, I demonstrate that a goodwill accounting system that allows both annual impairment testing and systematic amortization, while allowing firms the discretion to choose a firm-specific mix of each, provides the most value relevant goodwill accounting numbers.

Keywords: goodwill, impairment, amortization, valuation

JEL Classification: M41

Suggested Citation

Chambers, Dennis J., Has Goodwill Accounting Under SFAS 142 Improved Financial Reporting? (April 2007). Available at SSRN: https://ssrn.com/abstract=953649 or http://dx.doi.org/10.2139/ssrn.953649

Dennis J. Chambers (Contact Author)

Kennesaw State University ( email )

560 Parliament Garden Way
MD #0402
Kennesaw, GA 30144
United States
470-578-6375 (Phone)
470-578-9018 (Fax)

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