Setting new rules for Goodwill accounting : the british experience

The purpose of this paper is to analyse the process of development of the standard relating to goodwill by the British Accounting Standards Board (ASB) (FRS 10, 1997) and more precisely to understand how and why the ASB came to favour a solution (capitalisation of goodwill with impairment tests) at odds with the existing regulations (capitalisation and systematic amortization). The first part of the paper provides an overview of the evolution of the national and international regulations on the subject. Although this “innovation” is generally attributed to the FASB, we point out the active role of the ASB. In the second part, a detailed description of the development of the standard-setting project on goodwill within the ASB is provided for the period 1991-1995, through interviews conducted with the project director. The results suggest that although this solution appeared early in the process, its acceptance was dependent on its practical feasibility. Moreover, its final adoption as a mere option within FRS 10 highlights the fact that it is not comfortable for a standard-setter to go against the mainstream.