The new rules of accounting for goodwill and their impact on financial reporting Online publication date: Fri, 23-Sep-2005
by Sulayman H. Atieh
J. for International Business and Entrepreneurship Development (JIBED), Vol. 1, No. 1, 2003
Abstract: Goodwill is an accounting term for the difference between what an acquiring company pays for an acquisition and the fair value of the acquired company's net assets. The new accounting rules, as presented in the Statement of Financial Accounting Standards No. 142, eliminate the amortization of goodwill and require companies to test the value of goodwill they carry on their financial statements at least annually and write down its value if the fair value of the goodwill is less than its recorded value. The implementation of these new accounting rules has a great impact on earnings and the prices of stocks. Many companies have announced estimates of potential goodwill impairment charges that they will take in adopting the new accounting rules. The stock prices of companies that are candidates for goodwill write-downs already have declined, reflecting investors' awareness that these acquisitions no longer are as promising as once believed.
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