Corporate governance and earnings management ... - CEREG

Verley (1906, p. 39) considers French law is “inspired” by and sometimes even “obsessed”
with German law, stressing that while goodwill “can” be entered as an asset, it will be a
“highly uncertain value” and a “fictitious” asset that should be eliminated without delay. Like
Didier (1885), he believes that “the lower the figure for fixed assets, the greater our
confidence in the company” (p. 133), and that the value of intangibles should not be “pumped
up” (p. 141). Amiaud, a leading lawyer of the time, and (already) defending a “continental”
view of the balance sheet against the “Anglo-Saxon” view (1920, p. 6), recommended that
start-up costs (and in the minds of the period this generally included goodwill) should be
written off “immediately” (1920, p. 104).
On the whole then, the doctrine of the time was clearly in favor of the purely static
approach. The dynamic approach of long-term amortization was only supported by Magnin
(1912), whose writings, inspired by the German dynamic school, were fiercely criticized by
most other authors.
The only real resistance to the static view came from French followers of the famous
German lawyer H.V. Simon, principally Duplessis (1903) and above all Charpentier (1906),
who were in favor of goodwill remaining in the balance sheet at its acquisition value, unless a
fall in its “useful” value could be proved. This is in effect a conservative version of the
actuarial approach.
b) Case law
The few relevant court rulings issued were in favor of the purely static approach, i.e. rapid
amortization regardless of its value in use 1 . Briefly, from this standpoint goodwill becomes an
immediate expense, although as a “favor” for companies, it could in exceptional
circumstances be amortized over a brief period.
1 Besançon, Feb. 1, 1895, Journal des Sociétés, 1895, p. 356; Revue des Sociétés, 1895, p. 429; Lyon, Feb. 20,
1903.
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