Identification of Intangible Assets in Business Combinations -A comparison between the US and Sweden

Abstract

Background and Discussion: In 2002, IASB and FASB started working on a convergence project with the aim of identifying and minimizing differences between the two regulations, IFRS and US GAAP. Since 2005, when it became mandatory to prepare the financial statements in accordance with IFRS for all listed companies in the EU, goodwill has grown remarkably in Sweden but stayed rather stable in the US. Is this partly depending on differences in recognition of intangible assets in business combinations? Since the standards are similar to each other, could quality of enforcement affect accounting choices and the recognition of intangibles? Purpose and Research Questions: The purpose of this thesis is to examine if there are any significant differences in recognition of intangible assets when acquiring firms perform their purchase price allocations in business combinations. The research questions are: Are there any differences in the recognition of specific intangible assets in business combinations in the US, between the examined years, and due to the characteristics of the acquiring firms, and the size of the acquisitions? Are there any significant differences in the recognition of intangible assets when comparing the US and Swedish samples? Methodology: To test for differences in recognition of intangible assets in business combinations, this thesis is approached by a deductive method of quantitative character, using secondary data. Financial data is gathered from databases and annual reports, and the hypotheses are tested with Kruskal-­‐Wallis tests and linear regression models. Results and Conclusions: The characteristics of the acquiring firm that significantly showed to affect the recognition of intangible assets were firm size, industry affiliation and technology-­‐level. Size of the acquisitions was also a significant factor. The results from the regression model showed that US firms recognizes a larger share of intangible assets in business combinations than Swedish firms and we assume this is the result of stronger enforcement in the US.