Analyst Characteristics and the Level of Critical Perception of Goodwill Accounting

While inputs into analysts' valuation models have been documented (Brown et al. 2015), analysts' prior perceptions of reported financial statement items have not yet been studied. It is important to be aware of analysts' perceptions of the current accounting standards because they are, to some extent, substitutes for industry-specialized auditors in monitoring financial reporting (e.g. Sun and Liu 2011). We address this shortcoming by investigating analysts' perception of the financial statement item which provides a most significant reporting latitude, namely goodwill, using data collected through a survey of Nordic and Austrian financial analysts. Factor analysis yields two constructs, one that reflects a critical attitude to the current goodwill accounting standards and one that reflects a trusting attitude to the current standards. A structural equations model suggests that having a background in auditing is associated with being more sceptical towards the current standard. We argue that the professional scepticism inherent in the auditing profession is transferred into a new profession as an analyst. In addition, experience is associated with a sceptical perception of the current goodwill accounting model, whereas a basic (low) level of formal business (accounting) education is associated with a more trusting perception than a high level of education