Corporate governance and earnings management ... - CEREG

Mörschel (1933, p. 34) shows that at the time, goodwill was treated in the same way as
advertising expenses, and consequently immediate expensing or at least rapid amortization
was required.
This doctrine still held sway in Germany in the 1920s and 1930s. Only a few authors, even
in the field of business economics, dared to propose recognition of goodwill followed by
amortization over more than five years (Take, 1939, p. 116). Among the main proponents of
this approach were Schmalenbach (1949), Müller (1915), Schreier (1928), Stern (1907), and
Schmidt (1927) (on these authors, see Greve, 1933, p. 32; Take, 1939, p. 111-112), all of
whom were in favor of long-term, systematic amortization.
Court rulings
There were relatively few relevant court cases in Germany between 1900 and 1931.
According to Greve, the rulings issued were (1933, p. 31), “of the same opinion as the
commentators on the Commercial Code”, which suggests they looked favorably on rapid
expensing/amortization. Only one decision, in 1915 (quoted in Greve, 1933, p. 31), was in
favor of compulsory asset status for acquired goodwill (this status was always refused for
internally generated goodwill). The others (in 1901, 1909 and 1914) allowed recognition of
acquired goodwill as an asset but considered it as an “ideal” asset (in the sense of imaginary,
as opposed to a “real” asset) (Greve, 1933, p. 31-36; Mörschel, 1933, p. 34).
b) Second sub-phase, 1931 - 1985: introduction of a law
The second sub-phase saw the introduction of a formal obligation by the German
commercial legislators. It was a period of deep mistrust regarding treatment of goodwill as an
asset, culminating in 1965 with the introduction of compulsory rapid amortization for any
goodwill recorded as an asset. This development in German commercial law was all the more
striking because at around the same time, the courts and tax administration were expressing
their opposition to systematic amortization of goodwill.
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