The implications of unverifiable fair-value accounting: Evidence from the political economy of goodwill accounting

I study the evolution of SFAS 142, which uses unverifiable fair-value estimates to account for acquired goodwill. I find evidence consistent with the FASB issuing SFAS 142 in response to political pressure over its proposal to abolish pooling accounting. The result is interesting given this proposal...

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Bibliographic Details
Published in:Journal of accounting & economics 2008-08, Vol.45 (2), p.253-281
Main Author: Ramanna, Karthik
Format: Article
Language:English
Subjects:
Accounting
Accounting standard setting
Accounting standards
Agency theory
Enterprises
Fair values
FASB statements
Financial reporting
Goodwill
Lobbying
Political economy
Politics
Regulation
SFAS 142
Studies
U.S.A
Values
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Summary:I study the evolution of SFAS 142, which uses unverifiable fair-value estimates to account for acquired goodwill. I find evidence consistent with the FASB issuing SFAS 142 in response to political pressure over its proposal to abolish pooling accounting. The result is interesting given this proposal was due in part to SEC concerns over pooling misuse. I also find evidence consistent with lobbying support for SFAS 142 increasing in firms’ discretion under the standard. Agency theory predicts such unverifiable discretion can be used opportunistically.
ISSN:0165-4101
1879-1980
DOI:10.1016/j.jacceco.2007.11.006