Accounting for goodwill in the context of the usefulness of financial statements
Accounting for goodwill in the context of the usefulness of financial statements

Summary/Abstract: Purpose: Accounting for goodwill is one of the most controversial areas of financial reporting. For decades, it has been subject to numerous changes, including options from writing it off to equity to keeping it permanently at cost. In the author’s opinion, this instability of the accounting approach results from an insufficient understanding of the economic essence of goodwill. There is a conflict between accounting regulations, where there is a clear trend to extend its useful life, and business logic, which defines goodwill as an unstable and constantly evolving network of relationships between resources. The aim of this article is to analyze if the present accounting treatment of this item correctly reflects its economic essence. Methodology/approach: Research was carried out based on data obtained directly from the financial statements of the top twenty listed entities in Poland, the UK, the USA, and Germany. Findings: Appropriate ratios have been calculated to substantiate the view that the entities take advantage of accounting regulations and, in practice, useful life ranges from 20 to over 100 years, depending on the country. Originality/value: Research has proven that the present accounting treatment in terms of recognition and measurement of goodwill is not in line with the economic essence of this balance sheet item.

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