Corporate governance and earnings management ... - CEREG
Corporate governance and earnings management ... - CEREG Corporate governance and earnings management ... - CEREG
Abstract Accounting ceased to be considered as a pure technique a long time ago, and is often viewed as an instrument for social management and change. The objective of this paper is to illustrate the “game” between four social forces in the evolution of accounting regulation for goodwill. Based on a study of four countries, , Great Britain, the United States, Germany and France and over more than a century, starting in 1880, we illustrate the role of four groups of social forces: lawyers, bankers, tax administrations and capital markets. We demonstrate that the four countries studied have a common starting point, a time when the lawyers were dominant, and have made their way to a common destination, due to the current importance of capital markets. The four countries have gone through four identified phases, classified as (1) “static” (immediate or rapid expensing), (2) “weakened static” (write-off against reserves), (3) “dynamic” (amortization over a long period) and (4) “actuarial” (recognition and no amortization). We contribute three new features to the existing literature on goodwill and social forces: (1) our study is international and comparative; (2) it spans more than a century and (3) illustrates the social nature of accounting showing the varying importance of social forces in time and the current “victory” of capital markets with regard to goodwill. 2
Introduction It was several decades ago that accounting ceased to be considered as a pure technique and came to be seen as an instrument for social management and change (Hopwood, 1976; Burchell et al., 1980; Puxty, Willmott, Cooper & Lowe, 1987), i.e. a “social rather than a purely technical phenomenon” (Burchell, Clubb & Hopwood, 1985, p. 381). Gilling (1976), as Burchell, Clubb and Hopwood mention (1985, p. 382), not only “notes the fact of and argues the necessity for accounting change under the impact of environmental (social and technical) change”, but also attempts to provide “some understanding of the underlying social and institutional forces at work”. This article sets out to show that if there is one issue that perfectly reflects the “game” among the social and institutional forces, goodwill is the one. Based on a study of four countries which played a major role at the time of the industrial revolution, Great Britain, the United States, Germany and France, we illustrate the role of four groups of “social forces” (expression namely used by Burchell, Clubb and Hopwood (1985, p. 382)): lawyers, bankers, tax administrations and capital markets. We demonstrate that the four countries studied have a common starting point, a time when the lawyers were dominant, and have made their way to a common destination, due to the current importance of capital markets. But the routes they took were different, precisely because the social forces’ roles were distributed differently in each country. As Leake (1914, p. 81) pointed out, the “word ‘Goodwill’ has been in commercial use for centuries, as is shown by the following references to old writers: 1571 Will & Inv. …, I gyve to John Stephen … my whole interest and good will of my Quarrell (i.e. quarry). … having given a hundred pounds for my predecessor’s goodwill”. Our study does not reach so far back in time, but still covers a period of more than a century, starting from 1880. This can be considered a key date in Germany, the country with the longest history of goodwill, but also in Great Britain (Bryer, 1995, p. 291). Hughes (1982, 3
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Abstract<br />
Accounting ceased to be considered as a pure technique a long time ago, <strong>and</strong> is often<br />
viewed as an instrument for social <strong>management</strong> <strong>and</strong> change. The objective of this paper is to<br />
illustrate the “game” between four social forces in the evolution of accounting regulation for<br />
goodwill. Based on a study of four countries, , Great Britain, the United States, Germany <strong>and</strong><br />
France <strong>and</strong> over more than a century, starting in 1880, we illustrate the role of four groups of<br />
social forces: lawyers, bankers, tax administrations <strong>and</strong> capital markets. We demonstrate that<br />
the four countries studied have a common starting point, a time when the lawyers were<br />
dominant, <strong>and</strong> have made their way to a common destination, due to the current importance of<br />
capital markets. The four countries have gone through four identified phases, classified as (1)<br />
“static” (immediate or rapid expensing), (2) “weakened static” (write-off against reserves), (3)<br />
“dynamic” (amortization over a long period) <strong>and</strong> (4) “actuarial” (recognition <strong>and</strong> no<br />
amortization). We contribute three new features to the existing literature on goodwill <strong>and</strong><br />
social forces: (1) our study is international <strong>and</strong> comparative; (2) it spans more than a century<br />
<strong>and</strong> (3) illustrates the social nature of accounting showing the varying importance of social<br />
forces in time <strong>and</strong> the current “victory” of capital markets with regard to goodwill.<br />
2
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