Goodwill/Intangibles Rules, Earnings Management and Competition

Abstract

This article analyzes several problems and psychological issues pertaining to the enforcement and efficiency of the US Goodwill and Intangibles accounting regulations (SFAS #141R, Business Combinations, and SFAS #142, Accounting for Goodwill and Intangible Assets). These regulations are likely to increase the incidence of fraud and misconduct. This article introduces a new Goodwill/intangibles disclosure/accounting model that can reduce the incidence of fraud, information asymmetry, moral hazard, adverse selection and inaccuracy; and also introduces new economic psychological theories that can explain fraud, misconduct and non-compliance arising from the implementation of SFAS 141R/142. The issues analyzed and theories developed in this article are applicable to International Accounting Standards Board’s (IASB) IFRS-3R (Business Combinations (Goodwill accounting) and IAS 38 Intangible Assets (accounting for Intangible Assets).