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Unformatted text preview: WAYNE LONERGAN Discussion of Bloom That the objective of financial reporting is to provide useful information for decision making is not only well known,it has long been the stated basic objective of accounting standard setters around the world. Similarly, there is broad agreement about what in financial terms is meant by the term ‘material’. It is therefore at least curious that, as Bloom (2009) notes, accounting standard setters devote only one accounting standard to good- will. This standard has remained substantially unchanged in its simplistic discussion of both measurement and disclosure requirements for goodwill for some thirty years. THE IMPORTANCE OF GOODWILL Various estimates have been made as to what proportion of total entity value constitutes goodwill. These assessments vary in detail, but not in broad direction. As Bloom (2009) observes, intangible assets represent by far the largest single asset category, by value, of most listed companies. Whilst there are, of course, obvious variations across industry sectors, for most listed companies goodwill represents a significant majority of total asset value goodwill. Measurement differences affecting the value relevance of goodwill depend upon whether entity value is measured as total stock market value, or total entity value (including premium for control). They also vary depending upon how recently, and at what stage in the economic cycle, acquisitions have been made. Despite account- ing standards to the contrary, some of the values attributed to goodwill also include values more properly attributable to identifiable intangible assets such as brands, licences, trademarks and such like. This commentary, although generally referring to goodwill, proceeds on the basis that the same general disclosure and measurement requirements should apply to all intangible assets. WHY HAVE STANDARD SETTERS SO NEGLECTED GOODWILL? The question naturally arises that if intangible assets and goodwill are so valuable, why has so little standard setting attention been paid to them? The reasons for W ayne L onergan ([email protected]) is a Director of Lonergan Edwards & Asso- ciates Limited. ABACUS, Vol. 45, No. 3, 2009 doi: 10.1111/j.1467-6281.2009.00296.x 390 © 2009 The Author Journal compilation © 2009 Accounting Foundation, The University of Sydney this neglect include measurement difficulties and, historically, sustained corporate objection to goodwill amortization requirements.Whilst measurement is much more of an issue at the individual identifiable intangible asset level, this rationale is more difficult to sustain with respect to the total intangible value and total goodwill value. These values have to be assessed for acquisition accounting purposes, for impair- ment purposes annually for goodwill, and where there is a prima facie indicator of impairment of other intangible assets.Valuations are also required for various other purposes such as tax consolidation, stamp duty and numerous other commercial...
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- Three '11
- Intangible Assets, Intangible asset, identifiable intangible assets, Accounting Foundation