Charles W. Mulford

Goodwill, triggering events, and impairment accounting

Purpose - The purpose of this paper is to examine the assessment process for goodwill impairment. The paper evaluates compliance with goodwill impairment tests required under the Statement of Financial Accounting Standard 142 and International Accounting Standard 36, highlighting challenges encountered in complying with these standards. The paper explores areas in which improvements might be made in both goodwill-impairment compliance and disclosures and identifies areas for future research. Design/methodology/approach - The method is exploratory in nature. A combination of data collection, analysis, and interpretation is employed. Findings - The research highlights a number of features of the impairment testing and measurement process that make implementation a challenge. Triggering events are many and vary greatly in significance and severity. Different valuation models are used and there is little conformity in the selection of discount rates. In some cases, though not consistently, control premiums are used to enhance the indicated market values of reporting units. Some firms may even deny the need for an indicated impairment charge. In all of the cases examined, the paper notes the need for judgmental estimates and the possibility that these estimates might be managed to alter or avoid goodwill impairments, limiting the comparability of results across firms. Practical implications - The findings will provide feedback to standard setters and practicing professionals in an effort to improve practice. For investors and creditors, the results should prove helpful in evaluating the likelihood of goodwill impairments. For researchers, the paper identifies certain questions that may provide fruitful avenues for further investigation. Originality/value - The findings are based on an examination of a large sample of current filings of public companies that has yet to be performed. The observed richness and variation in the practices employed and disclosures provided both broaden and deepen our understanding of goodwill impairment accounting.

Foreign currency translation and analyst forecast dispersion: Examining the effects of statement of financial accounting standards no. 52

Abstract Statement of Financial Accounting Standards (SFAS) No. 52, Foreign Currency Translation (1981), amended the accounting procedures for foreign currency statements by requiring the exclusion from income of most foreign currency translation adjustments. As a result, the earnings of affected multinationals were expected to become less volatile. This expectation is used in the present study to form a hypothesis that the adoption of SFAS No. 52 led to a reduction in the level of disagreement, known as forecast dispersion, among financial analysts in their forecasts of earnings. Forecast dispersion is considered to be a relevant measure of firm risk and has also been linked to stock trading volume. In detecting a reduction in dispersion associated with the adoption of SFAS No. 52, the present study indicates that an economic consequence was associated with the adoption of the accounting standard. The results and implications should be of particular interest to accounting policy makers as an insight into the effects of SFAS No. 52 on affected firms is provided. Financial analysts and market participants should also find the study to be of interest because it provides a better understanding as to why earnings forecasts may differ, potentially leading to a reduction in those differences and enhanced confidence in earnings forecast data.

The role of SEC materials in the course curriculum: Update and extension

Abstract This research updates and extends earlier work by Ketz and Kunitake (1985) by providing survey evidence on (a) the coverage that currently is given to SEC-related topics in undergraduate and graduate curricula, and (b) the importance practicing accountants and financial managers attribute to classroom coverage of various SEC-related topics. Survey responses were received from 129 certified public accountants, 59 financial managers, and 154 accounting program administrators. Results indicate that practitioners consider coverage of SEC topics less important than communication skills, about as important as computer integration and ethics, and somewhat more important than international accounting. There appears to be little support for a separate course devoted to SEC topics. In addition, we find perceptual differences among respondents concerning what constitutes “SEC materials”. We conclude the paper by offering some suggestions as to how SEC topics can be integrated into existing accounting courses.