Abstract

This study investigates the value relevance of goodwill accounting numbers disclosed in annual reports in the UK under UK-GAAP and IFRS. We exploit a natural experiment unique to the UK to explore the link between the adoption of the impairment-only regime and changes in the value-relevance and timeliness of goodwill-related accounting amounts. Our results suggest that goodwill impairment, in contrast to goodwill amortisation, is negatively associated with market values and that goodwill is value relevant in the year of purchase, but that its value relevance decays in subsequent years. However, goodwill impairments appear only partially timely to the market and investors seem to have assigned higher reliability to the more stringent impairment test under UK GAAP compared to IFRS.

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