Corporate governance and earnings management ... - CEREG

3.2. Phase 2: the “weakened” static phase (excluding France)
This phase is identifiable in all the countries except France: unlike the other countries
where accounting law is independent of tax law, from 1917 the situation in France was
dominated by tax concerns, which prevented change of the same sort as in other countries.
While the tax rule in the other countries was similar to the French rule of recognition without
amortization, its influence was not as great as in France. France will therefore be examined
separately (below). France was to return to a “normal” situation as domestic tax influence
declined and international influence increased.
3.2.1. Great Britain: the “weakened” static phase (1900 - 1990)
During this phase, the purely static approaches (immediate expensing or rapid amortization
against the year’s profits) increasingly fell from favor, while a “weakened” static approach
involving charging goodwill to equity became more popular.
The demise of the immediate expensing or rapid amortization practice is visible from the
work of influential authors of the first half of the 20 th century: Dicksee (1897), Garke and
Fells (1922) and Lancaster (1927) all reject the practice of quick “writing down” against
income.
The dominant solution is to make goodwill disappear by charging it to equity, a practice
that combines the basic static approach – goodwill is not an asset – with dividend distribution,
depending on future profits.
The idea of charging goodwill to equity comes from the leading author for the second half
of the 19 th century, Dicksee (1897), who took a stand on the issue as early as 1897. This
“king” of British accounting was caught between two conflicting views:
- influenced by the static doctrine of the time, he accepts that goodwill is an asset of
“arbitrary” value (1897, p. 45) that can be considered equivalent in nature to
“Establishment expenses” (1897, p. 46) and must be treated with “the greatest caution”
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