ESSAYS ON ACCOUNTING CONSERVATISM AND GOODWILL WRITE-OFFS, ACTA UNIVERSITATIS OULUENSIS G Oeconomica 44
|Kustantaja:||Oulun yliopisto|| |
|Sijainti:||Print Tietotalo|| |
|Tekijät:||JARVA HENRY|| |
One of the major features of financial reporting is conservatism. Accounting conservatism istraditionally defined by the adage “anticipate no profit, but anticipate all losses.” Accountingconservatism is manifested in two general but distinct ways. First, conservatism can beunconditional, meaning that the book value of net assets is understated due to predeterminedaccounting practices (e.g. immediate expensing of research and development expenditures asincurred). Second, conservatism can be conditional, meaning that the book value of assets iswritten down under sufficiently adverse circumstances, but not up under favorable circumstances(e.g. goodwill impairment rules). This dissertation focuses only on conditional conservatism.
The purpose of this dissertation is to increase our understanding of conditional conservatismthrough three inter-related essays. These essays seek to answer the following research questions:(1) Are standard measures of conditional conservatism affected by the asymmetry in cash flows?(2) How does “bad news” contribute to the persistence of accruals and cash flows? (3) Do firmsmanage fair value based goodwill write-offs under Statement of Financial Accounting StandardsNo. 142 (SFAS 142)? (4) What are the economic consequences of SFAS 142 goodwill write-offs?
Collectively, the empirical results of this dissertation further our understanding of thedeterminants and implications of conditional conservatism. The first essay demonstrates that theasymmetry in cash flows biases standard measures of conditional conservatism. The second andthird essays are one of the first to assess conservatism using an individual accrual account, namely,SFAS 142 goodwill write-offs. The second essay examines the reliability of goodwill write-offs,while the third essay provides evidence on the economic consequences of goodwill write-offs. Thefindings of these two essays are important for the debate on whether fair value measurements infinancial statements are appropriate.