Corporate governance and earnings management ... - CEREG

It is thus important to find out what practices most British accountants recommended.
Three distinct phases appear: one from 1880 to about 1900, followed by another covering the
years to 1990. From 1990, a third period began, one of intervention by the standard setters
and a fundamental change of conception.
In the first phase that is the subject here, the dominant doctrine considered that goodwill
was not a true asset, and should be immediately, or at least rapidly, expensed. The best proof
of the widespread refusal to consider goodwill as an asset is in the writings of Gundry, one of
the few authors in favor of seeing it as a “valuable asset” (Gundry, 1902, p. 663). Gundry
complains of “the general denouncement and deprecation of the term as an asset” (1902, p.
663). He quotes Pixley (1909), who includes goodwill in “fictitious assets accounts”, and
Dicksee, who “appears to deprecate the inclusion of goodwill in any accounts where it can
possibly be avoided” (Gundry, 1902, p. 662).
The lawyers, as in Germany (see below), appear to be the cause of goodwill’s “misfortune”.
Roby (1892, p. 291), for example, points out that in the event of bankruptcy, what he calls
“local goodwill ... will be of little value for any purpose of realization”. He even goes so far as
to say that “the purchase of a goodwill is like the purchase of a lottery ticket” (1892, p. 293).
The argument that goodwill would have no value in a bankruptcy situation was taken up by
(many) accountants, including Knox (in Guthrie, 1898, p. 430), Stacey (1888, p. 605) and the
author of a leading article in Time in 1905 (quoted by Dicksee & Tillyard, 1920, p. 99).
So it is hardly surprising that a large number of accountants are in favor of immediately or
rapidly writing off goodwill against profits. Matheson (1884) is one of these, although he does
qualify his statements, only demanding total disappearance for goodwill that is “small”.
Another author, Bourne (1888, p. 604), is of the opinion that acquired goodwill “should be
gradually written off, so that in a few years the account could be closed”. The reason he gives
is that “it is a prudent course to adopt, not knowing what may happen in the futurity, … to
extinguish as early as possible all intangible and fictitious assets”, using the “Revenue
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