Article2008

Equity recognition of mandatory accounting changes: the case of transitional goodwill impairment losses

Pascale Lapointe‐Antunes · Denis Cormier · MICHEL L. MAGNAN

56 citations0/0 files storedCanadian Journal of Administrative Sciences / Revue Canadienne des Sciences de l Administration

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Auditing, Earnings Management, Governance Accounting Theory and Financial Reporting Corporate Governance and Financial Management

Abstract

Abstract This study investigates if and how the use of the retroactive method to account for a mandatory accounting change affects a firm's measurement and recognition choices. We examine if reporting incentives and constraints are associated with the magnitude of transitional goodwill impairment losses reported by Canadian firms implementing Section 3062 on purchased goodwill. Our results indicate firms have an incentive to both overstate and understate transitional goodwill impairment losses. We also show that financially literate and independent audit committees constrain managerial opportunism. Copyright © 2008 ASAC. Published by John Wiley & Sons, Ltd.

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References

1999A Review of the Earnings Management Literature and Its Implications for Standard Setting 2002Audit committee, board of director characteristics, and earnings management 1996Causes and Consequences of Earnings Manipulation: An Analysis of Firms Subject to Enforcement Actions by the SEC*2003Earnings management and corporate governance: the role of the board and the audit committee 2003Conservatism in Accounting Part I: Explanations and Implications 1990Positive Accounting Theory: A Ten Year Perspective.2001Empirical research on accounting choice 1998Earnings management and the underperformance of seasoned equity offerings11We thank Brad Barber (the referee), Randy Beatty, Vic Bernard, K.C. Chan, Kent Daniel, M. DeFond, Laura Field, David Heike, Chuan Yang Hwang, Jonathan Karpoff, S.P. Kothari, Charles Lee, Wayne Mikkelson (the editor), Tim Opler, Krishna Palepu, K. Ramesh, Jay Ritter, Terry Shevlin, Doug Skinner, Sheridan Titman, Ross Watts, Jerry Zimmerman, and seminar participants at the University of California Finance and Accounting Conference (Davis, March 1995), the NBER Corporate Finance Conference (Boston, August 1995), the Center for Research in Security Prices Seminar (Chicago, October 1995), the American Finance Association Conference (San Francisco, 1996), the American Accounting Association Conference (Chicago, August 1996), the University of Michigan, and the University of Rochester for helpful comments and discussions.

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