Goodwill Amortization in the Italian Civil Code: Estimation Problems and a Methodological Proposal
Keywords:
Goodwill amortization, goodwill useful life, legal-economic analysis, Italian companies, Italian Civil Code
Abstract
In regulating the financial statements, the amortization of goodwill represents a complex problem that requires a careful assessment of the economic conditions of the firm and their foreseeable evolution. This study aims to analyze the topic with specific regard to the Italian context, in order to identify the parameters useful for guiding the amortization processes, in compliance with the limits set by the legislation on financial statements. To this end, the study used a methodology based on the legal-economic analysis of the evolution of Italian legislation from 1882 to today and its effects on the economic valuations implied by amortization. The results show that the accounting for goodwill has changed over time, being characterized in the first phase by the prevalence of conservative accounting and by the consequent need to amortize goodwill in the shortest possible time. Subsequently, the accrual basis prevailed over conservatism, and today the basic rule is represented by the useful life of goodwill. The originality of this study lies in the multidisciplinary approach which, by combining the economic interpretation of the company with the legal rules on reporting, proposes an analysis model applicable in the practice of companies that prepare their financial statements according to the Civil Code.
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References
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22. Jennings, R., LeClere, M., & Thompson, R. B. (2001). Goodwill amortization and the usefulness of earnings. Financial Analysts Journal, 57(5), 20-28. https://doi.org/10.2469/faj.v57.n5.2478.
23. Kothari, S. P. (2000, June). The role of financial reporting in reducing financial risks in the market. In Conference Series-Federal Reserve Bank of Boston (Vol. 44, pp. 89-102). Federal Reserve Bank of Boston; 1998
24. Li, Z., Shroff, P. K., Venkataraman, R., & Zhang, I. X. (2011). Causes and consequences of goodwill impairment losses. Review of accounting studies, 16(4), 745-778. https://doi.org/10.1007/s11142-011-9167-2.
25. Masini, C. (1947). L’economia delle imprese industriali di medie dimensioni nelle rilevazioni di azienda. Milano: Giuffrè.
26. Massoud, M. F., & Raiborn, C. A. (2003). Accounting for goodwill: are we better off?. Review of business, 24(2), 26-32.
27. Ratiu, R. V., & Tudor, A. T. (2013). The theoretical foundation of goodwill-a chronological overview. Procedia-Social and Behavioral Sciences, 92, 784-788. https://doi.org/10.1016/j.sbspro.2013.08.755.
28. Schatt, A., Doukakis, L., Bessieux-Ollier, C., & Walliser, E. (2016). Do goodwill impairments by European firms provide useful information to investors?. Accounting in Europe, 13(3), 307-327. https://doi.org/10.1080/17449480.2016.1254348.
29. Shahwan, Y. (2011). Review of accounting for goodwill: Historical to current perspectives. Corporate Ownership and Control, 8(3), 233-241.
30. Waxman, R. N. (2001). Goodwill convergence. The CPA Journal, 71(10), 18-24.
31. Zappa, G. (1910). Le valutazioni di bilancio con particolare riguardo ai bilanci delle società per azioni. Milano: Soc. An. Istituto Editoriale Scientifico.
32. Zappa, G. (1920-1929). La determinazione del reddito nelle imprese commerciali. I valori di conto in relazione alla formazione dei bilanci. Roma: Anonima Libraria Italiana.
2. Amodeo, D. (1951). Note sulla tecnica e la politica dell’ammortamento, Napoli: Giannini.
3. Amodeo, D. (1965). Ragioneria generale delle imprese. Second Edition. Napoli: Giannini.
4. Ardemani, E. (1958). L’avviamento dell’impresa. Milano: Marzorati.
5. Bédard, J., & Gendron, Y. (2010). Strengthening the financial reporting system: can audit committees deliver?. International journal of auditing, 14(2), 174-210.
6. Bloom, M. (2009). Accounting for goodwill. Abacus, 45(3), 379-389. https://doi.org/10.1111/j.1467-6281.2009.00295.x.
7. Bushman, R. M., & Piotroski, J. D. (2006). Financial reporting incentives for conservative accounting: The influence of legal and political institutions. Journal of accounting and economics, 42(1-2), 107-148. https://doi.org/10.1016/j.jacceco.2005.10.005.
8. Caratozzolo, M. (2006). Il bilancio d’esercizio. Milano: Giuffrè.
9. Cassandro, P. E. (1950). L’incidenza dei fattori produttivi a lungo termine sul risultato economico di periodo. Bari: Cacucci.
10. Churyk, N. T., & Chewning Jr, E. G. (2003). Goodwill and amortization: Are they value relevant?. Academy of Accounting and Financial Studies Journal, 7(2), 57-69.
11. Colley, J. R., & Volkan, A. G. (1988). Accounting for goodwill. Accounting Horizons, 2(1), 35-41.
12. De Gobbis, F. (1931). Il bilancio delle società anonime. Second Edition. Milano: Società Anonima Editrice Dante Alighieri.
13. De Gobbis, F. (1935). Le nuove proposte di riforma del codice di commercio riguardanti i bilanci delle società anonime: lezione tenuta il 4 giugno 1935-XIII dal Prof. Francesco De Gobbis per la chiusura del suo corso di Ragioneria. Torino: Stabilimento Tipografico Villarboito.
14. Ding, Y., Richard, J., & Stolowy, H. (2008). Towards an understanding of the phases of goodwill accounting in four Western capitalist countries: From stakeholder model to shareholder model. Accounting, organizations and society, 33(7-8), 718-755. https://doi.org/10.1016/j.aos.2007.07.002.
15. Duvall, L., Jennings, R., Robinson, J., & Thompson II, R. B. (1992). Can investors unravel the effects of goodwill accounting?. Accounting Horizons, 6(2), 1.
16. Escaffre, L., & Sefsaf, R. (2010). French market reaction to the announcement of goodwill impairment. Working paper. University of Angers.
17. Ferramosca, S., & Allegrini, M. (2021). Impairment or amortization of goodwill? An analysis of CFO Perceptions of Goodwill Accounting. European Management Journal, 39(6), 816-828. https://doi.org/10.1016/j.emj.2021.03.001.
18. Garcia, C., Katsuo, Y., & van Mourik, C. (2018). Goodwill accounting standards in the united kingdom, the United States, France, and Japan. Accounting History, 23(3), 314-337. https://doi.org/10.1177/1032373217748672.
19. Hall, S. C. (1993). Determinants of goodwill amortization period. Journal of Business Finance & Accounting, 20(4), 613-621. https://doi.org/10.1111/j.1468-5957.1993.tb00279.x.
20. Henning, S. L., & Shaw, W. H. (2003). Is the selection of the amortization period for goodwill a strategic choice?. Review of Quantitative Finance and Accounting, 20(4), 315-333. https://doi.org/10.1023/A:1024043316292.
21. Jahmani, Y., Dowling, W. A., & Torres, P. D. (2010). Goodwill impairment: A new window for earnings management?. Journal of Business & Economics Research (JBER), 8(2). https://doi.org/10.19030/jber.v8i2.669.
22. Jennings, R., LeClere, M., & Thompson, R. B. (2001). Goodwill amortization and the usefulness of earnings. Financial Analysts Journal, 57(5), 20-28. https://doi.org/10.2469/faj.v57.n5.2478.
23. Kothari, S. P. (2000, June). The role of financial reporting in reducing financial risks in the market. In Conference Series-Federal Reserve Bank of Boston (Vol. 44, pp. 89-102). Federal Reserve Bank of Boston; 1998
24. Li, Z., Shroff, P. K., Venkataraman, R., & Zhang, I. X. (2011). Causes and consequences of goodwill impairment losses. Review of accounting studies, 16(4), 745-778. https://doi.org/10.1007/s11142-011-9167-2.
25. Masini, C. (1947). L’economia delle imprese industriali di medie dimensioni nelle rilevazioni di azienda. Milano: Giuffrè.
26. Massoud, M. F., & Raiborn, C. A. (2003). Accounting for goodwill: are we better off?. Review of business, 24(2), 26-32.
27. Ratiu, R. V., & Tudor, A. T. (2013). The theoretical foundation of goodwill-a chronological overview. Procedia-Social and Behavioral Sciences, 92, 784-788. https://doi.org/10.1016/j.sbspro.2013.08.755.
28. Schatt, A., Doukakis, L., Bessieux-Ollier, C., & Walliser, E. (2016). Do goodwill impairments by European firms provide useful information to investors?. Accounting in Europe, 13(3), 307-327. https://doi.org/10.1080/17449480.2016.1254348.
29. Shahwan, Y. (2011). Review of accounting for goodwill: Historical to current perspectives. Corporate Ownership and Control, 8(3), 233-241.
30. Waxman, R. N. (2001). Goodwill convergence. The CPA Journal, 71(10), 18-24.
31. Zappa, G. (1910). Le valutazioni di bilancio con particolare riguardo ai bilanci delle società per azioni. Milano: Soc. An. Istituto Editoriale Scientifico.
32. Zappa, G. (1920-1929). La determinazione del reddito nelle imprese commerciali. I valori di conto in relazione alla formazione dei bilanci. Roma: Anonima Libraria Italiana.
Published
2022-12-14
How to Cite
Baldissera, A. (2022). Goodwill Amortization in the Italian Civil Code: Estimation Problems and a Methodological Proposal. European Scientific Journal, ESJ, 12, 249. Retrieved from https://eujournal.org/index.php/esj/article/view/16214
Section
ESI Preprints
Copyright (c) 2022 Annalisa Baldissera
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
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