6 Conclusion
The objective of this paper was to evaluate whether there is a relation between the recognition of IIA’s and acquisition premiums, which is suggestive of overpayment. Furthermore, whether this relation changed with transition to IFRS when the incentives recognise IIA’s ceased. This is of concern as it identifies accounting practices which have commonly been labelled as opportunistic as also having economic consequences. Evidence is provided of a positive relation between IIA’s recognised in business combinations and acquisition premiums in periods prior to transition to IFRS. Subsequent to transition to IFRS, this relation ceased. This paper makes a number of contributions to the academic literature. It extends the literature considering accounting policy choices for business combinations and the economic consequences. In the US there is evidence of firms, using the pooling method, paying higher acquisition premiums. In Australia, where firms were unable to use the pooling method, the same outcome was achieved through the recognition of IIA’s and evidence is provided that IIA’s are being associated with high acquisition premiums in the period prior to transition to IFRS. Hence this paper identifies an economic consequence to the opportunistic choice of accounting policies. Subsequent to transition to IFRS there is no evidence that IIA’s are associated with high acquisition premiums, notwithstanding the relative latitude in the initial recognition of IIA’s in business combinations afforded by AASB 3 Business Combinations and AASB 138 Intangible Assets. This is not to assay that high acquisition premiums and possibly overpayment doesn’t occur subsequent to transition to IFRS. To the extent that the incentives for opportunism remain an issue requiring address is whether there are alternative sources of accounting flexibility in relation to business combinations, such as goodwill which is no longer subject to mandatory amortisation.
