Corporate governance and earnings management ... - CEREG

conventional wisdom: bankruptcy (Wilson, 1995, p. 58). At that time power (to offer life or
death in case of failure) was in the hands of rich and influent creditors, i.e. gentlemen,
widows, merchants supplying country banks. As far as failures were frequent (Wilson, 1995,
p. 56) these people imposed overall a cautious attitude (Wilson, 1995, p. 61).
3.1.2. United States: the static phase (1880 - 1900)
Throughout the period, goodwill was not considered as a true asset in the United States, and
was theoretically to be deducted against revenues. Changes in the treatment of goodwill in the
United States illustrate that the static approach was becoming increasingly problematic for
American social forces.
There was no regulation during this phase, but British writings and practices were very
influential. As one American goodwill historian has put it, “accounting literature was almost
British, discussion there dealt with problems encountered in British practice” (Hughes, 1982,
p. 24). As we have seen, the dominant British practices and doctrine of the time considered
that acquired goodwill was not a true asset and should be immediately, or rapidly, expensed.
The situation appears to have been the same across the Atlantic. Symptomatically, the authors
of one study of changes in the treatment of goodwill took their opinions from Harris (1884, p.
11) and assert that prior to the late 19 th century, “accountants appeared in substantial
agreement that amounts expended for goodwill should not be carried very long in the balance
sheet” (Catlett & Olson, 1968, p. 38).
More (1891, p. 286), in England, quotes an eminent American author who declared that
goodwill “is nothing more than a hope grounded on a probability”. Knight (1908, p. 197),
another author, speaks of goodwill as an “uncertain value” and deems that “the best course is
to dispose of such an account through a charge to depreciation”, the writing off … having to
be “encouraged”. This view had a long-lasting influence, to be found in the statements of one
of the leaders of American accounting thought in the period 1900-1920, for whom goodwill
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