University of Oulu

Essays on accounting conservatism and goodwill write-offs

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Author: Jarva, Henry1
Organizations: 1University of Oulu
Format: ebook
Version: published version
Access: open
Online Access: PDF Full Text (PDF, 0.6 MB)
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Language: English
Published: 2010
Publish Date: 2010-08-10
Thesis type: Doctoral Dissertation
Defence Note: Academic dissertation to be presented with the assent of the Faculty of Economics and Business Administration of the University of Oulu for public defence in Arina-sali (Auditorium TA105), Linnanmaa, on 10 September 2010, at 12 noon
Reviewer: Professor Seppo Ikäheimo
Professor Richard G. Sloan


One of the major features of financial reporting is conservatism. Accounting conservatism is traditionally defined by the adage “anticipate no profit, but anticipate all losses.” Accounting conservatism is manifested in two general but distinct ways. First, conservatism can be unconditional, meaning that the book value of net assets is understated due to predetermined accounting practices (e.g. immediate expensing of research and development expenditures as incurred). Second, conservatism can be conditional, meaning that the book value of assets is written 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 conservatism through 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 firms manage fair value based goodwill write-offs under Statement of Financial Accounting Standards No. 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 the determinants and implications of conditional conservatism. The first essay demonstrates that the asymmetry in cash flows biases standard measures of conditional conservatism. The second and third 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. The findings of these two essays are important for the debate on whether fair value measurements in financial statements are appropriate.

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Series: Acta Universitatis Ouluensis. G, Oeconomica
ISSN-E: 1796-2269
ISBN: 978-951-42-6259-3
ISBN Print: 978-951-42-6258-6
Issue: 44
Copyright information: © University of Oulu, 2010. This publication is copyrighted. You may download, display and print it for your own personal use. Commercial use is prohibited.