In 2001, the FASB (Financial Accounting Standard Board) introduced accounting regulations SFAS 141 and SFAS 142 to improve the relevance, representational faithfulness, and comparability of financial reporting. The new standards have profoundly changed the accounting for business combinations and goodwill under US GAAP by requiring reporting entities to no longer amortize goodwill over its expected useful life, but to test for impairment annually. However, the new regulation has met sharp criticism for creating a scope for high levels of managerial discretion which may be exercised opportunistically in the accounting for goodwill. This study examines whether the proportion of purchase price allocated to goodwill differs between public and private acquisitions. We try to answer this question by carrying out a quantitative study on 481 observations, between the period of 2001 to 2005 by studying the relationship between acquirer type (Public vs. Private) and target firm characteristic on goodwill allocated, and we find the following results: 1) Public acquirers allocate higher levels of goodwill in comparison to private acquirers. (2) Market-to-book values of private target firms are not positively correlated with recorded goodwill levels.

Since 2005 all companies listed on a regulated stock exchange within the European Union are required to present their financial reports in accordance with International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS). The purposes of these standards are to accomplish international harmonization of accounting rules to make financial reports more comparable. However, recent research has shown that some firms tend to use goodwill strategically in a business combination by manipulating the acquired assets and consciously allocate the intangible assets to goodwill to reduce the depreciation in the income and decrease costs. This phenomenon may reduce the comparability between financial reports and thus has an opposite effect on the purpose of IFRS and IAS.The aim of this study is to show how the companies involved in this study allocate goodwill strategically. Furthermore, the introduction of the new standards has contributed to that goodwill now is a subject for impairment test, therefore we want to show whether this affected the comparability of the companies in this study.An empirical study was conducted, based on interviews with four Swedish managers. The empirical findings are discussed in the light of the IASB Conceptual Framework, IAS 36 impairment test, allocation of goodwill and the comparability between companies. Our study reveals that three of four companies has a strategy for allocating goodwill. It is also clear that comparability has been reduced by the introduction of IAS 36; all respondents agree and highlight the problem of subjectivity of the management.