Corporate governance and earnings management ... - CEREG

p. 24) tells us that “accounting literature on goodwill appeared in both Great Britain and the
United States at about the time the profession was beginning to be formed … and papers read
at meetings of these societies were printed for the members and published in periodicals or
newspapers, such as The Accountant started in 1874”.
Nobes and Norton (1996, p. 180) note that there are three types of goodwill: (a) internally
generated goodwill, (b) goodwill purchased when buying assets other than by buying the
shares in a company (non consolidation goodwill), and (c) goodwill purchased by a group
when buying shares in a company (consolidation goodwill). This paper concentrates on the
last two types, which we refer to as “acquired goodwill” (individually or in a business
combination). Internally generated goodwill is not covered, as it involves specific issues in
addition to those relating to acquired goodwill (see Jennings & Thompson, 1996).
Many articles observe a wide diversity in both regulations and treatments applied in
practice to goodwill (Catlett & Olson, 1968; Hughes, 1982; Arnold et al., 1994). In the United
States, Walker (1938a) provides tables showing prevailing practices in the treatment of
goodwill in the balance sheet. The tables illustrate that there is “little uniformity as to the
position of goodwill”. In the United Kingdom, Holgate (1990, p. 9) considers that “the history
of how goodwill has been accounted for … is a classic case study of the difficulties that
standard-setters – and legislators – face in the light of varied practice, vested interests and an
inadequately developed theoretical framework of accounting”.
It is always difficult to divide accounting regulation into clearly dated phases. For this
study, we decided to take a time when fundamental change took place as the start of a phase.
That time is mainly determined by the change in accounting regulation (the issuance of a new
standard or of an exposure draft that would later lead to the final standard). However, for the
early stages (the end of the 19 th century and the beginning of the 20 th century) when the
formal accounting regulation on goodwill was still absent, we rely on discussion papers
written by leading scholar of the period to determine the phases.
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