Mark G. McCarthy

Market Perception of Goodwill: Some Empirical Evidence

Abstract Accounting and reporting for goodwill has been on the agenda of the Financial Accounting Standards Board, the International Accounting Standards Committee, the UKs Accounting Standards Board, and the US Congress. Goodwill has also been the subject of Securities Exchange Commission rulings directed at specific companies. The attention directed towards goodwill would suggest that it is a material asset for a large number of firms. This article analyses the market perception of goodwill as an asset in the determination of the firms valuation. Also explored is whether the market values goodwill to the same degree as it values other assets. The results of this study found that the market perceives goodwill as an asset and incorporates the information in the valuation of a firm. The findings of this study could be of importance to those involved in and affected by standard-setting deliberations involving goodwill.

Earnings impact of applying international accounting standard 32 to convertible debt: Some evidence for U.S. firms

Abstract The International Accounting Standards Committee (IASC) recently issued a new accounting standard, International Accounting Standard (IAS) 32, Financial Instruments: Disclosures and Presentations. The new standard calls for issuers of convertible debt to record separate debt and equity components at the date of issuance. In contrast, current U.S. accounting rules for issuers of convertible debt. Accounting Principles Board Opinion No. 14 (APBO 14), Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants, require the “entirely debt until conversion” approach. U.S. issuers of convertible debt are not governed by IAS 32. However, the issuance of IAS 32 shows obvious international consensus for the separate components approach. In addition, there is substantial support among U.S. academic accountants for the components approach used in IAS 32. This article explains and analyzes the potential financial reporting impact of IAS 32 if it were applied to a sample of U.S. issuers of convertible debt. The results of this study show that reclassification of a portion of convertible debt proceeds to equity has the potential to materially increase interest expense and decrease earnings. This study provides important insights which should be of interest to the financial reporting community in the U.S. and internationally.

The best tax strategies for M&A

Companies are taking a new look at the best tax strategies for M&A because a proposed FASB rule could make mergers a lot more expensive.