The Impact of Goodwill Recognition and Goodwill Impairment on the Increasing Holdings of Block Shareholders

There is a large amount of goodwill recognition and goodwill impairment. These characteristics would trigger stock price fluctuation. Hence, stakeholders will increase holdings to mitigate the volatility of stock prices. According to the data in regard to the Chinese A-share nonfinancial listed companies from 2007 to 2020, we study the reaction of block shareholders after goodwill recognition and goodwill impairment, respectively. Our findings are as follows: (1) goodwill recognition leads to increasing holdings of block shareholders; (2) goodwill impairment also leads to increasing holdings of block shareholders when there is a large amount of goodwill impairment. We also take state ownership into consideration: compared to state-owned firms, private firms show a much stronger positive relation between goodwill recognition and level of increasing holdings of block shareholders, but there is no significant relation between goodwill impairment and increasing holdings of block shareholders in state-owned firms. These empirical results provide us with abundant evidence that block shareholders would increase shareholdings when there is goodwill recognition due to private information of positive future expectation in M&A. Meanwhile, block shareholders would stabilize stock price via increasing shareholdings when goodwill is impaired.

How Do Client-Provided Benchmarking Data Impact Auditors’ Evaluations of Level 3 Fair Value Discount Rate Assumptions?

This article summarizes the published study “The Impact of Benchmark Set Composition on Auditors’ Level 3 Fair Value Judgments” (Bhattacharjee, Moreno and Wright 2019), which examines how auditors’ judgments of the reasonableness of a client’s discount rate for a Level 3 investment are impacted by client-provided benchmarks. In two experiments, the authors find that audit seniors’ and managers’ judgments of a client-preferred discount rate for an investment are inappropriately influenced by the set of peer companies provided by the client as justification. Managers are less susceptible than seniors, likely due to highly developed knowledge structures. Results suggest that providing structured audit guidance to the seniors for conducting analyses somewhat reduces but does not eliminate this effect. The study’s findings have implications for other auditing contexts using benchmarking such as goodwill impairment, inventory obsolescence, and valuation estimates and for audit firms when auditing complex estimates and determining staffing of audit engagements.

Discretion in the application of the goodwill impairment test in European banks

In the absence of amortization of goodwill, the purpose of this study is to identify whether the impairment test was applied uniformly between 2005 and 2015 at the 45 biggest banks in Europe, during the first decade of IFRS application. Likewise, an attempt has been made to verify whether such application has been insufficient and late. Through a significant sample, statistical tools already widely used in other studies have been applied to contrast the behavior of entities. The results obtained show that impairment policies have been applied unevenly in each of the countries. These conclusions could support the return to a valuation pattern that takes into account the systematic amortization of goodwill, apart from its impairment. This paper reveals how impairment in European banks has been recognized during a crucial period of time that includes a major financial crisis. The study suggests a discretionary and opportunistic implementation of accounting regulations which does not reveal the economic conditions inherent to the financial activity of the leading European banks, making comparability difficult and, ultimately, making the financial information less relevant.

Current value as relational becoming: the case of goodwill impairment testing

Purpose The purpose of this study is to shed light on the tools, processes and negotiations involved in the formation of acceptable current values in the context of goodwill impairment testing. The study raises the questions of how a current value for goodwill becomes a faithful representation and how one expectation about the future becomes more convincing than other expectations. Design/methodology/approach Drawing on the study of associations, the analysis presents a case study of a large, internationally active organisation. By combining field notes, interview transcripts and a variety of documents, the qualitative analysis focusses on strategies and mechanisms of persuasion. Findings The findings reveal how epistemological objectivity of current values forms in three moments of relational becoming that codify, depersonalise and proceduralise the valuation task. Further, the study suggests that a convincing argument forms with the help of four enablers: a bricolage of inscriptions, methodological mystification, transformed professional identities and a practical need for closure. Originality/value The study contributes with an analysis and illustration of financial accounting as practice, elaborating on the meaning and construction of faithful representation in cases of measurement uncertainty.

International disclosure practices in reporting under COVID 19

Introduction. The outbreak of COVID-19 has forced every country to impose strict measures to curb the spread of the virus, most countries have closed their borders, imposed restrictions on business, cut off transport, and these circumstances are extremely important for disclosure in financial statements, and complicate the process its compilation. Thus, these challenges and current conditions contribute to the importance of providing high quality information, as users of financial statements need timely, high quality and complete information, which is compiled through the prism of COVID-19 impact on the company, its financial condition, liquidity and future prospects. Purpose. Generalization of international disclosure practices in financial statements under COVID-19 and recommendations for resolving problems arising from the pandemic and affecting the reporting of economic entities. Results. Summarizing the recommendations provided in Australia and Belgium professional organizationsac, companies are required to disclose material uncertainties related to COVID-19 in their financial statements, including assessing the impact of the pandemic on the enterprise, identifying countermeasures taken and showing the impact on the Company's future operations. For goodwill impairment tests and other vulnerable items, the disclosure of material assumptions should be provided in sufficient detail, together with a description of the approach to determining the value assigned to each key assumption. These include assumptions about the duration and intensity of the effects of the cessation of operations and the recovery phase. The entity will also need to explain the significant impact of COVID-19 on the risks associated with the financial instruments and how it manages those risks. Conclusions. Having determined that the pandemic has a significant impact on the financial performance of companies around the world, we conclude that the burden of using the best, most accurate, truthful and accessible information in making sound and validated judgments and estimates that take into account the effects of the COVID-19 pandemic.