Goodwill on trial: Reflections on its fundamental nature and epistemology

Corporate failure and financial scandal draw attention to the ambiguities of accounting numbers and their relation to economic reality. We analyse the views expressed by key stakeholders during oral evidence sessions from two parliamentary-led public inquiries regarding high-profile corporate collapses. We focus on the accounting treatment for goodwill and explore the differing ontological and epistemological perspectives and assumptions presented. We focus on how stakeholders set out their beliefs vis-à-vis two fundamental philosophical questions, namely: ‘What is goodwill?’ and ‘What is the nature of this knowledge?’ While investors challenge the existence of goodwill, casting doubt on its underlying (economic) reality, preparers and auditors advocate for the current treatment. Members serving on the inquiry committees challenge the latter position and instead suggest that the reported goodwill balances fail(ed) to reflect economic reality. They claim that this is evidenced by the collapse of the companies, despite balance sheets showing high carrying values of goodwill and a lack of impairment. Regulators are unwilling to provide a response to the question ‘What is goodwill?’ and instead argue that attempts to understand the goodwill numbers are impeded by overly complex rules. We discuss the implications of our findings and offer avenues for future research.