The Evidence of Goodwill Disclosure at Indonesia’s Listed Company and Goodwill Relationship with Future Earnings

While goodwill had clearly met the two characteristics of an asset (i.e. the occurrence of past transaction and the rights to control the assets), the “future economic benefits” of goodwill is often debatable. This paper attempts to study the existence of goodwill benefits in the company’s actual earnings. Investigating all companies in the Jakarta Stock Exchange for the period 2005, we find that 62 companies disclose goodwill in their financial reports. Four hypotheses are developed to indicate any positive relationship between goodwill and the company’s earnings. The research finds that there is a positive relationship between the amount of goodwill and the company’s earnings. It then explains as to the size of goodwill and its influence on a business’s capacity to earn higher profits. The research proves that goodwill possesses future economic benefits that contribute to the actual earnings of a company, which is derived optimally in the early years subsequent to the business combinations. The research also revealed that the disclosure compliance of Indonesian listed companies in regards to goodwill disclosure requirements is still low with 47% of the sample companies failed to comply all disclosure requirements. Keywords: Goodwill, Future Economic Benefits, Amortization, Disclosure, Earnings, Matching Principles, Intangible assets, Indonesia