Auditing Goodwill in the Post-Amortization Era: Challenges for Auditors

• 成果类型: Article
• 署名作者: Ayres, Douglas R.; Neal, Terry L.; Reid, Lauren C.; Shipman, Jonathan E.
• 署名单位: Butler University; University of Tennessee System; University of Tennessee Knoxville; Wake Forest University; University of Arkansas System; University of Arkansas Fayetteville
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.12423
• 发表日期: 2019
• 页码: 82-107
• 关键词: accounting discretion; earnings management; impairments; QUALITY; RISK

摘要

The elimination of goodwill amortization in 2001 brought about significant change in how companies are required to account for goodwill. This change in accounting also brought with it new challenges for auditors, namely evaluating the reasonableness of management's assumptions related to goodwill valuation. In addition to introducing technical challenges, this task is particularly difficult given the misalignment in incentives it creates between managers who likely prefer to avoid recording an impairment and auditors who seek to minimize the bias in management's impairment testing. This study focuses on the consequences of the misaligned incentives that auditors face under the current goodwill assessment process. We find that the decision to record a goodwill impairment is associated with an increase in the probability of auditor dismissal. Consistent with the presence of significant friction with clients, our results also indicate that the likelihood of auditor dismissals is negatively related to the favorability of the impairment decision. Furthermore, we find that companies impairing goodwill prior to dismissing auditors subsequently employ auditors that are, on average, more favorable to clients in their impairment decisions.