The Recognition of Identifiable Intangible Assets in a Business Combination. The influence of enforcement

Master Degree Project in Accounting, 30.0 credits. School of Business, Economics and Law, Gothenburg University Authors: Carin Enocson, Veronica Rodriguez Labra Supervisors: Jan Marton, Niousha Samani and Markus Rudin Title: The recognition of identifiable intangible assets identified in a business combination -The influence of enforcement Keywords: Intangible Assets, Enforcement, Accounting, IFRS 3, European Union, Business Combinations. Background and discussion of the problem: In 2005, the EU mandated all listed firms to report their consolidated financial statement in accordance with IFRS. By doing so, it was claimed that the comparability of the financial information would be enhanced. However, studies have shown that this has not been the case and one of the reasons for this are differences between EU countries enforcement practices. Furthermore, the economy has during the last decade developed into being more knowledge driven and technology based. Because of this transition, intangible assets are becoming more important than fixed assets in driving business performance. In a review of IFRS 3 Business Combinations, IASB stated that there are differences between countries in the implementation of the standard, which might influence the recognition of intangible assets. It was also stated that a potential explanation could be the enforcement differences between countries. Purpose: The purpose of the study is to investigate if enforcement influences the recognition of identifiable intangible assets, when acquiring a business in accordance with IFRS 3 Business Combinations. Delimitations: This master’s thesis is limited to only study country-level and firm-level enforcement separately or by interaction, and its influence on the recognition of identifiable intangible assets in a business combination. Another limitation is the period of investigation, which is between the years 2006 and 2013. This research is also limited to only study listed companies within the EU that have made business combinations during the years studied. Methodology: In this study a quantitative approach has been used, where a number of hypotheses connected to enforcement’s effect on the recognition of identifiable intangible assets in a business combination are tested. The empirical data is primarily gathered from databases and thus from secondary sources. The study sample consists of listed companies within the EU that have made acquisitions between the years 2006 and 2013. Finally, to test the hypothesis and reach the purpose, statistical regression analysis has been used. Results and conclusion: The results of the statistical tests show that there are country differences in the recognition of identifiable intangible assets. More so, accounting enforcement on a country-level has a positive influence on the recognition of identifiable intangible assets in a business combination. However, neither enforcement on firm-level nor the interaction between firm-level enforcement and country-level enforcement has an influence of the recognition of identifiable intangible assets. Accordingly, this study concludes that only country-level accounting enforcement has an influence on the recognition of identifiable intangible assets in a business combination. Table of Contents 1 Introduction . 1 1.1 Background . 1 1.2 Discussion of the problem . 2 1.3 Purpose . 3 1.4 Problem statement . 3 1.5 Delimitations . 4 1.6 Contributions . 4 1.7 Outline . 5 2 Institutional Background . 6 2.1 IFRS 3 and identifiable intangible assets . 6 2.2 European enforcement body . 6 2.3 Consistent application of IFRS 3 . 7 3 Theoretical Framework . 8 3.1 Reporting differences across EU countries . 8 3.2 Country-level enforcement and IFRS . 9 3.3 Firm-level enforcement and IFRS . 10 3.4 The interaction between firm-level and country-level enforcement . 11 4 Methodology . 13 4.1 Research approach . 13 4.2 Variables . 14 4.2.1 The dependent variable . 14 4.2.2 The independent variables . 15 4.2.3 Internal corporate governance proxies for firm-level enforcement . 17 4.2. 4 The control and interaction variable . 18 4.2. 5 The variable definition table . 20 4.3 Sample and data collection . 20 4.4 Statistical testing . 22 4.5 Limitations of the study . 24 4.6 Summary of statistical tests and models for each hypothesis . 25 5 Presentation and Analysis of the Empirical Findings . 26 5.1 Descriptive statistics . 26 5.2 Differences between countries . 28 5.3 Country-level enforcement and identifiable intangible assets . 29 5.4 Firm-level enforcement and identifiable intangible assets . 31 5.5 The interaction between the two levels of enforcement . 33 5.6 Summary of the empirical findings . 34 6 Discussion . 35 6.1 Differences in reporting practices across EU countries . 35 6.2 Country-level enforcement and identifiable intangible assets . 36 6.3 Firm-level enforcement and identifiable intangible assets . 37 6.4 Enforcement interaction and identifiable intangible assets . 38 7 Concluding Remarks . 39 7.1 Conclusion . 39 7.2 Suggestion for future research . 40 Appendix 1 . 45 Appendix 2 . 46 Appendix 3 . 47 Appendix 4 .