Accounting for Goodwill: a Controversial Topic in Accounting?

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Abstract
The aim of this short paper is targeted at broadening general understanding of the impact of accounting for goodwill in the Non-for-Profit environment based on its financial practicability and how a focus on the fair value of goodwill goes to the heart of the value of an Organization. Various amendments and new accounting rules; Enron and WorldCom misfortunes; Ponzi Schemes and other white collar financial frauds have brought about stricter governance and financial statement reporting responsibilities on organizations, including the government and non for profits organizations. The enactment of the 2002 Sarbanes-Oxley Act; the GASB Statement 34; and the FASB No. 142 has been ways to improve how financial statements are prepared, and recorded in a uniformed version. As a result on these stricter requirements, stakeholders, financial statements prepares and auditors alike must now focus more carefully on balance sheet goodwill and other intangibles fair values, which hopefully will lead to a more credible financial reporting and to more realistic pricing/valuation practices and protection of shareholders value. Even though this paper is focusing on the non for profit part of goodwill, it is apparent that the treatment of good in a business combination is not very far apart from how it is treated in non-for-profits organizations except for some differences. Introduction

Reasons for Statement No. 142
According to FASB’s summary statement issued 6/01, analysts and other users of financial statements, as well as managements, noted that intangible assets are an increasingly important economic resource for many entities and are an increasing proportion of the assets acquired in many transactions. As a result, better information about intangible assets was needed. Financial statement users also indicated that they did not regard goodwill amortization expense as being useful information in analyzing investments. Opinion 17 provides little guidance about how to determine and measure goodwill impairment. As a result, the accounting for goodwill impairments is not consistent and not comparable and yields information of questionable usefulness. In order to improve how financial statements are reported in relations to Intangible Assets and Goodwill, and based on the interests of various financial stakeholders, statement No. 142 was introduced to supersede Accounting Principles Board Opinion No. 17. The proposed Statement would provide specific guidance for evaluating goodwill for Impairment.

Historical Perspective of Goodwill
Prior to 2001, Accounting for goodwill has always been controversial because of the way it was recorded. In the past, goodwill was recorded as an intangible asset resulting from acquisition (where two or more non-for-profits entities create a new entity or obtains control of one or more of non-for-profits activities or businesses) and how it initially recognizes their assets and liabilities in its financial statements. In this case, goodwill was assumed to be an asset with a fixed value for the life of the entity. In addition, goodwill was also written-off at acquisition in some instances by charging it to income from continuing operations in the year of acquisition. Historically, Accounting Principles Board Opinion No. 17 (APB No. 17), Intangible Assets, resulted in the uniform treatment of goodwill by all reporting entities in the United States because goodwill and other intangible assets were all presumed to be wasting away (i.e., finite –lived). The APB No. 17, required that all goodwill be reported as an intangible asset upon acquisition of another entity and that it be amortized in a systematic manner not to exceed a period of 40 years. Such goodwill was capitalized at acquisition as an intangible asset and amortizes over future periods of up to 40 years. Negative goodwill was recorded as a deferred credit after reducing proportionately to zero the values of assets that would have...
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