allocation to existing assets, there is enough
discretionintheprocessthatdifferentappraiserscan
arrive atdifferent estimatesfor asset and goodwill
value.- Dealing with goodwill. Once goodwill has been
recordedonthebooks,firms arerequiredto revisit
thatestimateeachyearandrecordanylossinvalue
that may have accrued (as an impairment charge)
over the prior period. Here again, there is some
discretion inboth themagnitudeand thetiming of
these charges. More aggressive firms will take
smaller and more delayed impairments than more
conservative firms.
These choices, in turn, make financial statements more
difficulttouse,notjustintheyearoftheacquisitionbutalso
in subsequent periods.
Financial Choices
Three decades ago, a firm’s choices when it came to financing
werestraightforward.Itcouldusecommonstock(equity)or
bank loans/corporate bonds (debt)and reflectthe amounts
raisedfromeachonthebalancesheet.Asfinancingchoices
haveproliferatedandnewanddifferentwaysofraisingfunds
(convertibles,warrants, and otherhybrids) havecome into
being,thebalancesheethasbecome morecomplicated.An
entirely new category of funding that accountants call
quasi-equity, representing hybrid securities (which are part
debtandpartequity),nowplaysaprominent rolein many
balancesheets.Firmshavealsobecomemoreinventive(with
the help of investment bankers) at keeping debt off their
books.