Controversies Over Accounting for Goodwill

This is an Open Access book.
 
The accounting treatment of goodwill has been widely debated, particularly regarding whether amortization should be reintroduced. After the IASB abolished amortization in IFRS 3 in 2004, the post-implementation review of IFRS 3 (PiR 3) was conducted from 2013 to 2015. The PiR 3 highlighted concerns that the impairment-only approach tends to cause the “too little, too late” issue, suggesting the reintroduction of amortization as one of the key primary candidates for a solution. During the process of the IASB responding to PiR 3, scandals such as the collapse of Carillion and massive goodwill write-downs by GE and Kraft Heinz reignited the debate. Critics argue that the impairment-only approach often results in “too little, too late.” Although the debate over whether goodwill should be amortized continued for the next 20 years without a resolution, the IASB halted the discussion in 2022; it now aims for a solution through disclosure, as users do not support the reintroduction of amortization.

This study examines the key arguments in favor of and against goodwill amortization through an analysis of IASB and ASAF meetings, a review and analysis of prior theoretical research, a survey of prior empirical research, questionnaire- and interview-based surveys of stakeholder opinions, and original empirical research. It also explores accounting education as a potential factor influencing our findings. Through these analyses, this study highlights how differences in accounting education, jurisdictional norms, and stakeholder interests contribute to conflicting perspectives. The survey conducted in Japan reveals that preparers, users, and auditors overwhelmingly support the amortization-with-impairment approach, diverging from international trends. Empirical research using Japanese archival data shows evidence consistent with the notion that market participants often anticipate impairment losses before they are formally recognized, reinforcing concerns over the “too little, too late” issue. Moreover, goodwill accounting is not a simple dichotomy, as discussed by the accounting standards-setting body, but a complex structural issue. Furthermore, accounting education can influence stakeholder perspectives, especially those of auditors, in Japan. The study concludes that understanding these diverse viewpoints is essential for fostering meaningful dialogue on goodwill accounting reforms.

Yoshihiro TOKUGA

He received his PhD in Economics from Kyoto University. He was a Professor at Kyushu University before joining Kyoto University, where he served as Dean of the Graduate School of Management and as Vice President. He is currently a Professor of Accounting and Vice President at Kyoto University of Advanced Science (KUAS). He also held visiting appointments at the University of Washington and Institute for Monetary and Economic Studies, Bank of Japan (IMES). 

His research focuses on international and financial accounting. He has published widely in these fields and has authored and edited several influential books. He has received multiple distinctions from the Japan Accounting Association (JAA), including Best Paper Award, Best Book Award, Honorary Membership, and the Outstanding Contributor Award from the Japanese Association for International Accounting Studies (JAIAS). He has served as President of JAA and the Asian Academic Accounting Association (AAAA), and as Vice President of the International Association for Accounting Education and Research (IAAER).

His public service includes appointments as Chairperson of the Financial Services Agency’s Business Accounting Council (BAC) and as a board member of the Certified Public Accountants and Auditing Oversight Board (CPAAOB) and the Accounting Standards Board of Japan (ASBJ).

Masaki YONEYAMA

He received his PhD in Economics from the University of Tokyo. Prior to joining the University of Tokyo, he served as a Professor at the Faculty of Economics, Gakushuin University, and the Graduate School of Accountancy, Waseda University. He has been a Professor at the Graduate School of Economics, the University of Tokyo, since 2012.

From 2001 to 2002, he served as a visiting researcher at the Mitsui Life Financial Research Center in Ann Arbor, University of Michigan. His primary research area is financial accounting, with a particular emphasis on accounting standard-setting. He has published extensively in this field and has authored and edited several influential books. He has received academic awards from both the Japan Accounting Association (JAA) and the Japanese Association for International Accounting Studies (JAIAS). He currently serves as President of JAIAS and has held public appointments as a member of the Financial Services Agency’s Business Accounting Council (BAC) and of the Accounting Standards Board of Japan (ASBJ). His major book-length works include Accounting for Impairment (sole-authored), An Analysis of the Consistency of Accounting Standards (sole-authored), and Release from Investment Risk (co-authored with Kenichi AKIBA and Yuko ASAMI).