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The Economics and Politics of AccountingInternational Perspectives on Trends, Policy, and Practice$
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Christian Leuz, Dieter Pfaff, and Anthony Hopwood

Print publication date: 2004

Print ISBN-13: 9780199260621

Published to Oxford Scholarship Online: January 2005

DOI: 10.1093/0199260621.001.0001

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New Accounting for Goodwill: Application of American Criteria from a German Perspective

New Accounting for Goodwill: Application of American Criteria from a German Perspective

(p.201) CHAPTER 4.1. New Accounting for Goodwill: Application of American Criteria from a German Perspective
The Economics and Politics of Accounting

Walther Busse von Colbe

Oxford University Press

A critical examination is made, from a German perspective, of accounting for purchased goodwill using the new (American) Financial Accounting Standards Board (FASB) standard: Statement of Financial Accounting Standards (SFAS)142 (Goodwill and other intangible assets). It is argued that SFAS 142 provides substantial room for manipulation, which raises doubts about its enforceability. The various sections of the chapter introduce some of the economic criteria that lend structure to the ongoing debate on accounting for goodwill – criteria that especially address the question of whether the impairment-only approach or the traditional amortization approach is more appropriate for satisfying investors’ information requirements. The following criteria are considered: relevance for capital markets; reliability of the accounting numbers; verifiability; comparability; conservatism; consistency/compatibility with Generally Accepted Accounting Principles (GAAP); suitability as a basis for dividend payout. Influence on management compensation/capital budgeting is also briefly discussed.

Keywords:   accounting, accounting for goodwill, amortization approach, capital budgeting, comparability, compatibility, conservatism, consistency, dividend payout, economic criteria, enforceability, Financial Accounting Standards Board, GAAP, goodwill, impairment-only approach, management compensation, purchased goodwill, relevance for capital markets, reliability, SFAS 142, suitability as a basis for dividend payout, verifiability

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