Enforcement -Can it explain the difference in the development of goodwill within the European Union?
Abstract: Background and Problem discussion: In 2005 IFRS became mandatory to follow in the EU. All countries within the EU are forced to report under the standard-setting body called IASB. By making IFRS mandatory, one single framework is provided to the member countries. Because differences in the development of goodwill have been observed, this thesis will try to reveal if enforcement can explain the differences in the development of goodwill among the countries within the EU. Purpose: The purpose is to find out if enforcement in fact can explain the difference in the development of goodwill, as the ratio goodwill as a part of total assets, within the EU. Since previous research has touched the subject, we want to examine if we can confirm that enforcement, on a country level, plays a role in the development of goodwill. Delimitations: The study does not include countries outside of the EU and is limited to companies within the EU that follow IFRS and has goodwill in their financial statements. We have decided to exclude following countries; Croatia, Bulgaria and Romania, since they have not been members of the EU during the entire test period, 2005-2012. We do not consider data before 2005, when IFRS became mandatory in the EU, nor do we test data after 2012. Research design: The study is designed to discover if differences in the development of goodwill is related to enforcement between 2005 and 2012 and will include goodwill as a part of total assets among the chosen years and countries. To accomplish this, data from a database is collected and statistically tested through multiple OLS regressions. This makes the study quantitative. Results and Conclusions: By examining enforcement, one of nine regressions proves that it can explain the existing differences in the development of goodwill among countries within the EU. In the outcome of the remaining eight tests, there is no significant evidence that enforcement in fact can explain the development of goodwill. Also, we have been able to confirm that there is a difference between the development of Goodwill/Total Assets and Goodwill/Intangible Assets. The intangible assets has increased more in relation to goodwill, than what total assets have, which is an interesting finding and will be suggested for further research. Suggestions for further research: We suggest a similar study but with other proxies of enforcement. Our thesis considers enforcement on a country level, which opens up for two different directions. One suggestion is a study that examines enforcement on a firm level. The other suggestion is to examine the development of enforcement within a country, in order to exclude underlying country factors and capture the essence. Due to our findings regarding the fact that intangible assets has increased more than total assets, in relation to goodwill, it would be interesting to conduct a study that examines IFRS 3.
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