Corporate governance and earnings management ... - CEREG

confers a certain value” (CNC, 1982, p. 120). Thus a degree of incentive for amortization for
accounting (rather than tax) purposes appeared. A survey of the treatment of goodwill in
financial statements of the largest French groups between 1988 and 1998 shows that almost
one half of these groups applied a systematic amortization of goodwill. This confirms a clear
evolution towards the dynamic approach (Richard, Becom Simons & Secafi Alpha, 2000, p.
168).
The move towards the dynamic approach was confirmed by the regulations governing
consolidated accounts. Decree 67-236 on companies, amended following the law of 1985 on
consolidated financial statements, ruled that unallocated goodwill arising on first
consolidation “must be included in income over a period of amortization”, while regulation
99-02, paragraph 21130 of 1999, stated that “the amortization period must… reflect the
assumptions used and objectives evidenced at the time of acquisition”.
It is true that even regulation used the flexibility allowed by the seventh directive and
introduced for French groups the possibility to write off goodwill against reserves. But,
contrary to its German counterpart, French regulation stated that this write off could only
happen “in exceptional circumstances duly justified in the note” (Decree of 23 March 1967
modified in 1986, § 248-3). Obviously, the French legislator wanted to restrain the use of the
weakened static approach in favor of the dynamic view.
Survey of practices of French groups provides evidence of the (forced) alignment of these
groups on dynamic theses. Richard et al. (2000, p. 163-164) show that from 1987 to 1998, the
systematic amortization of goodwill (over a longer and longer period, reaching more that 10
years in 92% of cases in 1998) became the rule for the 100 largest groups, whereas the write
off against reserves concerned at the end of the period only 2 or 3 groups.
The last issue deserving our interest is pooling. At the beginning of the period, the method
is unknown in regulation as it is unknown in practice (Raffegeau, Dufils & Corre, 1986, p.
444) although its use became possible, under certain conditions, with the article 20 of the
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