The value-relevance of financial statement recognition versus note disclosure: Evidence from goodwill accounting

Khaled Al Jifri, David Citron

Research output: Contribution to journalArticlepeer-review

36 Citations (Scopus)

Abstract

The relative significance of financial statement recognition and note disclosure is an important issue for accounting regulators, preparers and auditors. While standard-setters prioritise financial recognition over disclosure, the empirical evidence on the value-relevance of note disclosures is mixed. This is partly due to the severe methodological problems inherent in comparing the two modes of presentation. This paper examines this issue in a new context by exploiting the UK regulatory environment where old pre-FRS 10 goodwill continues to be disclosed in the notes to the accounts at the same time as new post-FRS 10 goodwill is capitalised. It thus uses a within-firm research method to examine the relative significance of the two goodwill amounts. The analysis is based on a sample of 243 non-financial firms containing amounts of both recognised and disclosed goodwill in their 2002 financial statements. Both variables are significantly associated with share price. In addition, for firms engaging in R&D, there is no significant difference between the contributions of disclosed and recognised goodwill in explaining market value, a result consistent with the markets efficiently incorporating goodwill information irrespective of where it appears in the annual report.

Original languageEnglish
Pages (from-to)123-140
Number of pages18
JournalEuropean Accounting Review
Volume18
Issue number1
DOIs
Publication statusPublished - 2009

ASJC Scopus subject areas

  • Accounting

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