An investigation of goodwill accounting policy choice within a specific knowledge framework

• Main Author: TAN, Pearl H. N.
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2001
• Subjects: Determinants of Goodwill accounting; direct write offs and amortization; Directors' specific knowledge of businesses; Accounting; Corporate Finance
• Online Access: https://ink.library.smu.edu.sg/soa_research/309; https://ink.library.smu.edu.sg/context/soa_research/article/1308/viewcontent/An_investigation_of_goodwill_accounting_policy_choice_within_a_specific_knowledge_framework.pdf
• Institution: Singapore Management University

This study, using Singapore data, investigates the relationship between Chief Executive Officers' (CEO) specific knowledge and the accounting method choice on capitalisation of goodwill. International Accounting Standard 22 (1987), applicable in Singapore in 1996, the year of the study, permits a choice between capitalisation with subsequent amortisation and immediate write-off of goodwill to reserves. This study proposes a positive relationship between human capital specificity of CEOs and the recognition of purchased goodwill on the balance sheet. Specific knowledge is unique to firms and is acquired through experience. Given that specialised assets arise from firm-specific circumstances, firm-specific knowledge potentially explains the recognition policies pertaining to specialised assets. Overall, the evidence in this study supports a positive relationship between CEOs firm-specific knowledge and the capitalisation of goodwill.