An Analysis Of Goodwill Accounting From The Perspectives Of Earnings Management And Pro-cyclicality

Before 2007,the old Chinese accounting principles required that we should use amortization method for the subsequent measurement of goodwill.The required years of amortization were usually 10 years,except for some special agreements in contracts.However,the subsequent measurement model is based on the assumption that goodwill might depreciate as time goes on,which is not accordant with practical circumstances,because some goodwill might increase in value,due to synergy effects.So,the Ministry of Finance issued a new accounting principles in 2007,in order to convergence to the international standards,and also to make the Chinese accounting principles match the practice better.According to the new Chinese accounting principles,the business reputation formed by merger of enterprises shall be subject to an impairment test at least at the end of each year.However,the change of the policy makes the goodwill formed by merge face huge risk of impairment and the volatility of the enterprise operation might be intensified.Therefore,this paper is based on the changes in accounting standards to analyze the goodwill accounting treatment.At present,most study has focused on theoretical analysis and the empirical study of large sample on the factors and economic consequences of goodwill impairment.Empirical researches are mainly through the economic consequences for the conversion of large sample of data analysis.As a result of the large sample making,the changing of the accounting standards of the deep-seated problems lack of in-depth analysis.This paper takes the case study approach,focusing on the analysis of one company,in order to mine valuable information and provide reference for the improvement of China's accounting policy.The paper analyzes the accounting treatment of goodwill mainly from two perspectives: earnings management to express the reasons of recognition of impairment and pro-cyclicality to express how goodwill affect the operation of the company in the respects of asserts and earnings.The study is based on CCID Media Investments Company in order to excavate the valuable information and provide some valuable advices for the modification of the accounting standards and the regulation of the management behavior of earnings management.In this paper,research has shown that goodwill impairment testing might provide an opportunity for managers to implement earnings management.In addition,investors have apparent responses to related events.What's more,there are pro-cyclicality in the field of goodwill,and these effects could be offset by changing the method of the subsequent measurement of goodwill..