Corporate governance and earnings management ... - CEREG

supporters of the actuarial approach, like the author (Anonymous, 1919, p. 200-201) who
wages war on those who see goodwill as “an illusory asset”, and asserts that it “is not subject
to depreciation as such”.
But the apparent diversity can be misleading: the “weakened” static approach is “in the air”,
although the fact that a good many authors defend the actuarial approach (at least from a
theoretical standpoint) shows that some of the accounting community were looking for a new
way.
In spite of that, one can say with an historian of British accounting that in the early part of
the 20 th century, at a time when “creditors and long-term investors were regarded as the
principal users”, “the use of conservative valuation procedures was advocated by influential
contemporary authorities” (Edwards, 1989, p. 110).
This weakened static solution was to win the day but remained in the UK the standard
approach until the end of the 1980s. Apart from reference to the influence of the dominant
doctrine, two facts support this statement:
- Firstly, in spite of one attempt to change the situation (a discussion paper dated 1980 with
a proposal for capitalization and systematic amortization), at no time were the British
lawmakers in a position to impose a solution contrary to the dominant practice (Paterson,
2002b). Furthermore, SSAP 22 (ASC, 1984, revised in 1989) admitted again goodwill to
be written off immediately against reserve while (only) offering the possibility of
capitalization and amortization against future profits over its “useful economic life”. The
first treatment was adopted almost universally (Arnold et al., 1994; Peasnell, 1996).
- Secondly, on the whole, this solution seemed to satisfy practitioners. In a 1974 survey of
large British companies’ financial statements by the ICAEW, of 209 companies, 129
eliminated goodwill without amortization, (only) 6 amortized it and 72 recorded it in
fixed assets and applied no amortization. This proves that the weakened static solution
was predominant. However, the existence of a non-negligible practice of keeping
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