Abstract
In recent years, several accounting standards, including IFRS 3, issued by the IASB, substitute historical cost with fair value measures and so provide managers with increased discretion to determine fair value without an actual market for the asset. Using Swedish data, we document the accounting consequences of the adoption of IFRS 3 and the stock market's reaction.
After the adoption of this standard in January 2005 the amount of capitalized goodwill increased substantially. Goodwill impairments under IFRS are considerably lower than goodwill amortizations and impairments made under Swedish GAAP.
Consequently, the adoption of IFRS 3 increased reported earnings. An analysis of economic incentives influencing the impairment decision at the initial adoption of IFRS 3 shows that tenured management is negatively associated with the impairment decision.