Development Of Industrial Relations In Hong Kong Commerce Essay

Development Of Industrial Relations In Hong Kong Commerce Essay In responding to the question, I agree with that the organization of industrial relations in Hong Kong has been less formalized and less centralized. There are three critical factors influenced the development of the industrial relations in Hong Kong. In the following essay, there will be a definition and description on industrial relations and the role of trade unions in Hong Kong. And discuss the background of economic, political and institutional sociology environment in post colony Hong Kong that affecting the function of trade union. Industrial Relations and Trade Union The terms of Industrial Relations is used to define the relationship and interactions between the employees (workers) and employers (management) within the organizational settings. Those interactions or activities were involved all aspects of the employment relationship, human resource management, employee relations and union-management relations. The main parties to the employment relationship and the key actors are workers and workers organizations (usually trade union), employers and managers and also the state (Bacon, 2009). Since there have difference perspective among employers, employees (workers) and trade unions (workers organization), the industrial relation means different things to different people. For workers, they wants fairness of employment outcome, better pay, workplace safety, job security and training, while employer wants more efficiency, more productivity, more flexibility in the workforce. In general, trade unions have a wide range of beneficial outcome. They can be the actor to force managers improve human resources management practices, being the role of consulting, promoting job equal opportunities, increasing job satisfaction and reducing labour turnover. Meanwhile, trade unions also acted as a representative of employee to voice out their needs as well as express their views and interests in the workplace. Furthermore, they can create issues covering on the wages and working hours, to encourage employees to be better producers for their employers and ensure employers provide better working conditions for employee through the activities of collective bargaining and negotiation. Thus, industrial relations were often subject to joint regulation which required cooperation among employee and employer participation in decision making. However, in Hong Kong, union effects nowadays appear to have reduced obviously or just apply limited effect in some special circumstance. It probably caused by the change of industrial relations since World War II, under the governance of Colonial British rule for 150 years prior to Chinas sovereignty. Critical factors leading that influence trade unions in Hong Kong Economic Factors First of all, from the aspect of economic factors, entrepot trade was the mainstay economy in Hong Kong. Nevertheless, with the declined of entrepot trade, the sudden influx of refugees and the capital from Shanghai and other major Chinese cities transferred to Hong Kong that influenced the movement of unions in labour relation. With the expansion of manufacturing sector (such as clothing and electronics) that facilitate the semi-worker and the skill transferred among difference industries. Manufacturing activities have accounted for the large share of labour force together with other sector, such as restaurants and hotels, wholesale and retail, commerce and finance (Ng, 1984). At that time, Small firm of individual business provided more employment opportunities. Hong Kong has accomplished a high rate of economic growth with lower unemployment rate. Under this circumstance, union membership is low and the collective bargaining is practically non-existent. There was no incentive to recognize trade unions or bargain collectively within workers. In addition, the perception of British voluntaristic tradition, gentlement agreement among the workplace are more significant than collective agreements, the lacking of legal obligation of enforceable contract that allow employer adjust their labour force in accordance to adapt with the market condition (Chiu and Levin,1996). Meanwhile, the new economic structure only focused to fit the economist prescription in the organizational level in regard of employment relations. Government had adopting a non-interventionist policies in the social and economic sphere that had no intention to restructure the industry by implementing regulation, tax policies or subsidies, remains the lowest taxes among the world to preserve economy incentives (Tang, 1999). It had created a capitalist framework of the economy that encourage private sector to pursuit the market capitalism. Furthermore, the free market approach, Laisse-faire policies initiated by the government on economic activities only consist with minimal regulatory, no minimum wage legislation, no fixing prices. That means people can buy from whom they want, to sell from whom they buy and to invest they want or to hire whom they want, to work for whom they want (Tang, 1999). As a result, the collusion between government and employer that emerged conflictual interest between labour and capital that empower employer over the labour process and employment relations by bargaining between individual employers and workers.(Chiu and Levin, 1999). Moreover, trade union in Hong Kong are all in political orientated, they are only interested in realizing political objective rather than seeking economic benefit for the workers through establishing formal rule making arrangement with employer (Chiu and Levin, 1999) Political and Sociology Factors The nature of political agreement for Hong Kongs revision to China was maintained the British rule of economic governance. Under this old model, administration worked was closely worked with business community that to ensure the stability of social and economic environment. Such policies were also included public housing programme, comprehensive system of education, public health, subsidized in transport and social service. Colonial government approach of non intervention policy that allowed business elite integrated largely in governance the system of colonial Hong Kong by formulating public policies in responds to the interests and demands of the dominant resources controller and economic elites (Chiu and Nevin, 1996). In the wake of the economic environment, a magnitude domestic disturbance posed major crises of legitimacy, which alert the colonial government had to build a new basis of legitimacy in order to increase the commitment to voluntarism (Chiu and Nevin, 1999) Since the Hong Kong Government had made a formal commitment for the civil servant over the employment term and condition that initiated the practice trend of civil-service to private-sector approach. This kind of voluntarist framework had influenced the development of private sector to be more formalized in labour relations in civil service that resulting a process of both formal and informal pressures on the dependent and cultural expectation within the organization. Meanwhile, trade union being recognised by the colonial government and creating formal channels for their participation in decision making on terms and condition of employment which is more advanced than other private sector employers. (Chiu and Nevin, 1996) Through the expanding minimum standards of employment not solely for the capitalist but also coincide the interest for vulnerable categories of employees in the workforce. The birth of the international legislation for women and child labour and the enactment of the Employment Ordinance and its subsequent amendments were established in 1920 and 1966-67 respectively in order to maintain domestic stability and legitimacy. The policy are set for prohibit any discrimination and guarantee to all persons equal and effective protection against discrimination on any ground such as race, colour, sex, language, religion, political or other opinion, national or social origin, property, birth or other status (Chiu and Levin, 1996). In addition, the set up of Labour Department in 1947, the establishment of the Employment Ordinance in 1974 (Chiu and Levin, 1996) and the reform of political structure in 1980s, establishment of district boards with elected members to advise the government on the matters affecting the welfare of the district (Tang, 1999),begun elected seats onto the Legislative Council as the British and Chinese government negotiated for Hong Kongs future. Political parties representing grass-root and labour interest were able to exercise far more to influence in the legislature (Tang, 1999). Since it opened up of the political system, small business and firms, as well as labour groups were more active in competing for political support to advance interests. Besides that, the establish of the Trade Unions and Trade Disputes Ordinance, that allow multiple union to form in the same trade, industry or enterprise that facilitate unions fragmentation and reducing potential untied opposition from organize d labour to colonial rule. The approach of positive non-intervention taken by Labour Department, emphasised not to impose tight control over unions activities and political orientation. However, the behaviour of the trade unions FTU CTU in Hong Kong, always fall into opposite and competition position between two Chinese government (pro-Chinese Communist Party and pro-Kuomintang Party) rather than using their resources to enhance the interest of workers through their domestic political action. Cultural Factors : The cultural factors of Neo-Confucian ideological which suggests workers in Chinese society accept authoritarian management and avoid confrontation with the employer (Chan and Snape, 2000). The traditional Chinese cultural of paternalism and instrumental individualism in the work place, can be interpreted as the collectivistic particularism of the Chinese family (Ng, 1984) which is a concept of utilitarianistic familism that typically concerned about the interest of family over societal or other group interest, thus, they are low in participating of social involvement with co-workers and neighbour (Chiu and Nevin, 1999). Therefore, with these two ideologies among employee, employment just viewed as their secondary concern. The low level of social involvement of political apathy that underpinning the low level of participation in the unionization and collective action among workers. On the other hand, the practical exercise of Chinese workers preference unofficial methods and personal network to achieve their goals rather than in a formal channel. In addition, the rapid growth of labour population by the influx of refugee that had influenced the attitude and behaviour among the workplace as their primary interest was maximizing the income to get familial group survival. Main unions grouping in Hong Kong The unions in Hong Kong are encompassed with three main federations. The Hong Kong Federation of Trade Union (FTU), the largest union in Hong Kong and was established in 1947. Second is the pro-democracy Hong Kong Confederation of Trade Unions (CTU) was formed in 1990 and has been worked close with the Christian Industrial Committee (CIC) that focusing on labour education and advising workers on grievances. Third, is pro-nationalist Hong Kong and Kowloon Trades Union Council (TUC), was established in 1948. There are also many difference independent unions which are smaller in specific sector, such as Hong Kong Chinese Civil Servants association (HKCCSA) and Hong Kong Professional Teachers Union (HKPTU). Traditionally, FTU have the role of taking an overly conciliatory line in labour disputes and focusing on the provision of welfare services to its members. However, it took a more moderate perspective that in line with Beijings conciliatory open door policy that not only participating in social affairs, striving for rights and benefit for workers but also promoting social stability and economic prosperity in Hong Kong. While CTU aims to build independent unions and encourage Hong Kong workers to see unions membership being about the protection of their interests (Snape and Chan,1997). The leadership of CTU was aimed to obtain the support from the grass-roots by effectively representing workers interests to government and to employers, playing a positive role in labour disputes by adopting an inclusive approach to unionization and desired to maintain stability which enable CTU is often cast in the role of trouble-shooter, and emphasizing the importance of CTUs political autonomy that to develop a political consciousness and to preserving trade union and other freedoms in Hong Kong. TUC, the association of KuoMinTang (KMT), affiliate has been seen as an expression of loyalty to the Nationalists. It displayed their influence mainly through their participation channel of communication with the government only. (Snape and Chan,1997) such as Labour Advisory Board. The leader of TUC has implemented low profile approach that in order to avoid anger Beijing. And the leadership were comes from the older age group that affecting the recruitment activity was more less than other unions and have been difficulties in recruiting younger workers. Implication However, accordance to the historical background, the effectiveness of trade union activities in Hong Kong is open to question. Given that the impact of Neo-Confucian, Chinese family and paternalism had influenced the mentality of Chinese workers and the first migrant generation, participated in the colonial educational system which limiting collective challenge towards colonial government should not be exaggerated. However, the combination of legislation and regulatory of voluntarism and the cultural perspective cannot be overlooked. This was not only influenced the institutions of family and education system but also foster the dominance of individual and instrumental labour market strategic. In accordance to its political background, governments non-intervention approach, collective bargaining in after world war II seems effective fro most of big business firms, however, the institutional environment had influenced the new form of modern labour organization in Hong Kong. That emerged the declined of labour movement and the new guild origins with a mutual aid function. From the aspect on welfare orientation, trade union acted as a principle agency between two rivalry Chinese parties, Kuomingtang and Chinese Communist Party. With tendency of enlarge their power and seeking the support from employer. However, it can lead to the reshape of industrial relation governance structure as well as trade union while the economic turn weak. In addition, trade union in Hong Kong can be viewed as mimetic as it replete with revolutionary and nationalistic movement. (Chiu and Levin, 1999) Under this circumstance, trade union lobbying benefit for worker are become ineffectiveness and gave the grounds for government and employer for resisting bargaining relations with the unions. Conclusion In general, trade unions role in other countries are concluding bargaining with employers for better pay, bonuses and allowance, better working conditions and more welfare benefit and try to get involve in the decision making are supported by employee. However, it doesnt not meant employee prefer representation and participation through trade union in Hong Kong. It can be interpreted due to the mentality difference among Hong Kong and others. The culturally conditioned fatalism and typically in-depth and influence employee in Hong Kong that lead to resistance of collective action (Chan and Snape, 2000). Besides the economic, political and sociological factors, employee apathetic to trade union can be seen as a key factor that influence trade union in Hong Kong became less formalized and less centralized.

Conflict, Climax, Resolution of Hawthornes Young Goodman Brown Essay

Conflict, Climax, Resolution of â€Å"Young Goodman Brown†Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚        Ã‚   Hugo McPherson in â€Å"Hawthorne’s Use of Mythology† makes a statement regarding the nature of the conflict in the works of Hawthorne:    Everything he has to say is related, finally, to ‘that inward sphere.’ For the heart is the meeting-place of all the forces – spiritual and physical, light and dark, that compete for dominance in man’s nature. †¦Those who read him as a Christian moralist recognize instantly an opposition between Head and Heart, reason and passion which is related not only to Puritan theology but to the Neo-Classical view of man†¦.(68-69)    Nathaniel Hawthorne’s â€Å"Young Goodman Brown† is, in the estimation of various literary critics, an example of various types of conflicts. This essay will examine them and also the climax and resolution of this short story.    Edmund Fuller and B. Jo Kinnick in â€Å"Stories Derived from New England Living† state that   â€Å"’Young Goodman Brown’ uses the background of witchcraft to explore uncertainties of belief that trouble a man’s heart and mind† (31). The conflict between pride and humility is the direction that Clarice Swisher in â€Å"Nathaniel Hawthorne: a Biography† tends: Hawthorne himself was preoccupied with the problems of evil, the nature of sin, the conflict between pride and humility† (13). There is little doubt about the pride of the protagonist as he scolds his wife for not fully trusting him: "’My love and my Faith,’ replied young Goodman Brown, ‘of all nights in the year, this one night must I tarry away from thee. My journey, as thou callest it, forth and back again, must needs be done 'twixt now and sunrise. What, my sweet, pretty wife, dost thou doubt me already, and we but three mo... ...W. B. â€Å"The Return into Time: Hawthorne.† In Hawthorne – A Collection of Critical Essays, edited by A.N. Kaul. Englewood Cliffs, NJ: Prentice-Hall, Inc., 1966.    Martin, Terence. Nathaniel Hawthorne. New York: Twayne Publishers Inc., 1965.    McPherson, Hugo. â€Å"Hawthorne’s Use of Mythology.† In Readings on Nathaniel Hawthorne, edited by Clarice Swisher. San Diego, CA: Greenhaven Press, 1996.    Swisher, Clarice. â€Å"Nathaniel Hawthorne: a Biography.† In Readings on Nathaniel Hawthorne, edited by Clarice Swisher. San Diego, CA: Greenhaven Press, 1996.    Wagenknecht, Edward. Nathaniel Hawthorne – The Man, His Tales and Romances. New York: Continuum Publishing Co., 1989.    Williams, Stanley T. â€Å"Hawthorne’s Puritan Mind.† In Readings on Nathaniel Hawthorne, edited by Clarice Swisher. San Diego, CA: Greenhaven Press, 1996.          Conflict, Climax, Resolution of Hawthorne's Young Goodman Brown Essay Conflict, Climax, Resolution of â€Å"Young Goodman Brown†Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚        Ã‚   Hugo McPherson in â€Å"Hawthorne’s Use of Mythology† makes a statement regarding the nature of the conflict in the works of Hawthorne:    Everything he has to say is related, finally, to ‘that inward sphere.’ For the heart is the meeting-place of all the forces – spiritual and physical, light and dark, that compete for dominance in man’s nature. †¦Those who read him as a Christian moralist recognize instantly an opposition between Head and Heart, reason and passion which is related not only to Puritan theology but to the Neo-Classical view of man†¦.(68-69)    Nathaniel Hawthorne’s â€Å"Young Goodman Brown† is, in the estimation of various literary critics, an example of various types of conflicts. This essay will examine them and also the climax and resolution of this short story.    Edmund Fuller and B. Jo Kinnick in â€Å"Stories Derived from New England Living† state that   â€Å"’Young Goodman Brown’ uses the background of witchcraft to explore uncertainties of belief that trouble a man’s heart and mind† (31). The conflict between pride and humility is the direction that Clarice Swisher in â€Å"Nathaniel Hawthorne: a Biography† tends: Hawthorne himself was preoccupied with the problems of evil, the nature of sin, the conflict between pride and humility† (13). There is little doubt about the pride of the protagonist as he scolds his wife for not fully trusting him: "’My love and my Faith,’ replied young Goodman Brown, ‘of all nights in the year, this one night must I tarry away from thee. My journey, as thou callest it, forth and back again, must needs be done 'twixt now and sunrise. What, my sweet, pretty wife, dost thou doubt me already, and we but three mo... ...W. B. â€Å"The Return into Time: Hawthorne.† In Hawthorne – A Collection of Critical Essays, edited by A.N. Kaul. Englewood Cliffs, NJ: Prentice-Hall, Inc., 1966.    Martin, Terence. Nathaniel Hawthorne. New York: Twayne Publishers Inc., 1965.    McPherson, Hugo. â€Å"Hawthorne’s Use of Mythology.† In Readings on Nathaniel Hawthorne, edited by Clarice Swisher. San Diego, CA: Greenhaven Press, 1996.    Swisher, Clarice. â€Å"Nathaniel Hawthorne: a Biography.† In Readings on Nathaniel Hawthorne, edited by Clarice Swisher. San Diego, CA: Greenhaven Press, 1996.    Wagenknecht, Edward. Nathaniel Hawthorne – The Man, His Tales and Romances. New York: Continuum Publishing Co., 1989.    Williams, Stanley T. â€Å"Hawthorne’s Puritan Mind.† In Readings on Nathaniel Hawthorne, edited by Clarice Swisher. San Diego, CA: Greenhaven Press, 1996.         

Quantitative and Qualitative Research

Research procedures depends on the analyzing data and questions on the topic being researched. All research can be differentiated on the basis of whether its methodology produces mostly numerical data (e. g. , scores and measurements) or mostly narrative data (e. g. , verbal descriptions and opinions) (Mertler, C. & Charles, C. 2011, p 24). Qualitative research and quantitative research are two types of research methods. Qualitative research involves analysis of data such as words, pictures, or objects. The purpose of qualitative research is of a complete, detailed description. Most researchers may not know exactly what he/she might be looking for in advance. Qualitative is usually recommended during the early phases of the research to help design the search as it is further researched. When data is being gathered, it is usually done by the researcher. The data consist of mainly words, pictures or objects. Qualitative data is time consuming and is harder to generalize the data gathered. Qualitative is useful for studying a limited number of cases, it is based on categories of meaning, provide individual case information. This type of research is great for understanding personal experiences form an insider’s viewpoint and how the participant interprets the data such as self-esteem. Qualitative researches also have weaknesses to consider. Some of the findings might be unique to the research study and not generalize to other people or settings. Qualitative research is difficult to make quantitative predictions. Hypothesis and theories are difficult to test and have lower credibility with some administrators of programs. Qualitative takes more time to collect data than it does for quantitative research. Qualitative is influenced by the researcher’s personal biases than statistics. Quantitative research is to classify the features and count them. Quantitative research is usually an attempt to construct statistical models to explain what is being observed. Before performing the research, the researcher clearly knows in advance what is being searched and trying to prove/not prove the hypothesis or theory. Quantitative research is carefully designed and uses tools to help collect numerical data. This type of research can be placed in a statistic or numerical form. The researcher is usually seeking predicament of measurement and analysis of the topic being researched. The researcher gives proven data and does not apply own personal feelings. Quantitative research has much strength for its purpose. When using quantitative research, testing and validating theories are being performed. Hypotheses are able to be tested and data can be constructed from the information collected. Researchers are able to construct situations to eliminate any confounding influences of different variables; this would allow more credibility to the cause-and-effect for the topic. Quantitative research is less time consuming since it is easier to find software or just log in numbers from the results that the researcher have proven. This type of research is great for hypothesis and theories. Quantitative research also has some weaknesses with its research. This type of research might have a hard time reflecting on local areas. Due to the focus on the hypothesis or theory testing, the researcher might miss out on phenomena occurring. The knowledge that is produced from quantitative research might be too much abstract and general for direct application to help with local situations. Quantitative research requires exact, true findings with the research. Qualitative and quantitative research can be hot debates in social sciences. When performing a research, the focus is on how the techniques need to be integrated. The researcher must know what kind of outcome they are searching for. This will help the researcher to decide on whether to use quantitative or qualitative research techniques. Both methods are great debates and require skills to perform throughout the research of any topic. In performing Dolphin Assisted Therapy research, qualitative research is my perspective of the topic. I will not be able to perform quantitative research due to it would take some time and access to the dolphin with the patients. My purpose of this research is to give details of how using dolphins with those of different ages who has different types of disabilities can help in many ways. It would be hard to give statistical numbers on a research that relies on personal experiences and personal viewpoints. During research, I will be looking at testimonials from patients that have had the opportunities to engage in dolphin assisted therapy. Each patient will be different than the other. One patient may have autism, depression, central-nervous-system deficiencies, birth defects, behavioral problems, and even traumatic injuries. Even though Dolphin Assisted Therapy has not been proven to be a medical fix, but it can be a mind-over-body healing, DAT does have its benefits. In my research, the testimonies will help show how DAT can be a good resource for some of those out there who have no more hope in a cure of any sort. References (2011). What is quantitative research? by djs research ltd. Retrieved from http://www. marketresearchworld. net/index. php? option=com_content&task=view&id=11&Itemid=64 Bio Expedition Publishing,. (n. d. ). Dolphin assisted therapy (dat). Retrieved from http://www. dolphins-world. com/Dolphin_Assisted_Therapy. html Curacao Dolphin Therapy & Research Center,. (2004). Curacao dolphin therapy & research center. Retrieved from http://www. dtc. an/ Dolphin Research Center,. (2011). Research at drc. Retrieved from http://dolphins. org/research _DRC. php Dolphin Therapy Bali,. (2007). Dolphin assisted therapy-dat. Retrieved from http://balidolphintherapy. com/dlphin_therapy_bali_indonesia_how_work. html Dr. Lukina,. (2001). Dolphin assisted therapy. Retrieved from http://www. dolphinassistedtherapy. com/index. htm Mays, N. , & Pope, C.. (2000). Qualitative research in health care. BMJ Publishing Group. Mertler, C. & Charles, C. (2011). Introduction to educational research (7th ed. ). San Francisco: Allyn and Bacon. Tiggerlily1999,. (1999). Dolphin assisted therapy. Retrieved from http://tiggerdolphin. tripod. com/DAT. html Wasserman, J.. (2207). Qualitative research. (D. Cormack, Ed. ) Qualitative Research, 7(2), 688- 91. Sage Publications. Retrieved from http://www. ncbi. nlm. nih. gov/pubmed/21496041

Goodwill in business - Free Essay Example

Sample details Pages: 9 Words: 2847 Downloads: 8 Date added: 2017/06/26 Category Business Essay Type Analytical essay Did you like this example? 1. Introduction Goodwill is an extremely interesting business phenomenon. It enables a firm to derive competitive advantage because of issues like reputation, stability, technical excellence, perceived quality and other intangibles, and thereby allows it to earn higher profits, than it would otherwise have, by selling its products or assets. While the need for valuation or accounting of goodwill does not arise in the normal course of a business or in its growth on a periodic basis, (because of the absence of physical assets to back it up), it becomes an extremely important aspect when a running business goes up for sale, or changes ownership, through mechanisms like mergers, or acquisitions. Goodwill can be considered from two different points of view: an economic and an accounting approach. The economic approach regards goodwill as the present value of the additional profits the acquiring company is expecting to gain in the future resulting from the acquisi tion. These additional profits arise from a â€Å"favourable attitude towards the firm† and from synergies. From an accounting perspective, goodwill is the difference in valuation between the purchase price and the book value of the acquired firm. (Lycklama, 2006) The dilemma faced by accountants in valuing goodwill is best illustrated by the sign Albert Einstein had in his Princeton office that stated, â€Å"Not everything that counts can be counted, and not everything that can be counted counts.† (Bullen and Cafini, 2006) Businesses with strong goodwill are valued at prices much higher than the value of their net assets, the differentials being asked and paid because of the intrinsic ability of these businesses to earn profits higher than what their assets would warrant. The accounting of goodwill thus arises at the time of change of ownership of a business, pursuant to its sale, merger or acquisition, and on a regular basis thereafter. Countries have historica lly followed different ways of accounting for many items, including goodwill. The USA and UK, for instance, have adopted accounting treatments for goodwill that have sometimes been similar, and sometimes markedly different. The ongoing process of globalisation has affected accounting practices worldwide. Businesses have never been as globalised as they are today. Numerous corporations from developed, newly industrialised and developing countries operate on a global basis and need to create financial statements, using the accounting practices of their home country, as well as those existing in their areas of operations. The divergence in accounting practices of different countries necessitates not only the preparation of separate financial and accounting statements, but also the subsequent reconciliation of differences. The international accounting fraternity is now steadily moving towards global commonality in accounting practices and procedural reporting. The International Accounti ng Standards Board (IASB) has been working towards convergence of global accounting standards. Its mission is to develop and enforce a single set of global accounting standards, based on preparation of high quality, transparent and comparable financial statements for local and global users. The IASB has been working on compiling a stable set of International Financial Reporting Standards (IFRS) for first time users. The IFRS became mandatory for all publicly listed companies in the European Union in 2005, and was also adopted by other advanced nations like Australia. The IASB has also been working very closely with the US Financial Accounting Standards Board (FASB), since 2002, to bring about convergence between US GAAP and the IFRS. However, significant work on harmonising IFRS with US GAAP has already occurred, and while some pending issues are currently under study for corrective action, the two systems are steadily approaching a state of convergence. â€Å"It is notable that some European firms that have been using US GAAP but are now adopting IFRS report a relatively minor impact† (Higson and Sproul, 2005) in their financial statements. It is the purpose of this essay to study the accounting treatment of goodwill under US GAAP and the IFRS, especially the developments of the last ten years, and analyse the reasons for the various changes, not only to assess the current situation, but also to determine what to expect in future. 2. Commentary a. Goodwill under US GAAP Goodwill is an intangible asset and represents the difference between the cost of an acquisition and the fair value of its identifiable assets, liabilities and contingent liabilities. A recent analysis by PricewaterhouseCoopers (PWC) estimates that intangible assets accounted for approximately 75 % of the purchased price of acquired companies in recent years. The histories of accounting treatment for goodwill in the US and UK have followed roughly similar paths even though d evelopments have not occurred at the same time. In the past, i.e., prior to 2001, companies in the US could structure acquisition transactions using a choice of â€Å"pooling-of interests† or purchase accounting method. The â€Å"pooling of interest† method for acquisitions and mergers allowed companies to refrain from distinguishing buyer and seller, and did not entail recording of the price of the acquisition. Goodwill valued by the company, in these circumstances, could be amortised in equal instalments over forty years. Changes occurred in the US accounting procedure with the issuance of two new accounting standards, 141 and 142. The â€Å"pooling of interests† method stood eliminated from June 30, 2001 and it became mandatory for all companies to use the purchase accounting method for all business accounting transactions. Requests from industry also led to the scrapping of the practice of amortising assets over forty years, especially by virtue of standard 142. While goodwill thus became, in certain ways, a permanent asset, which would not reduce in value with the passing of years, it became essential for companies to test it for impairment every year to ensure that its value to the business, (as shown in the balance sheet), did indeed reflect its true worth. Under accounting standard 142, it became necessary to review goodwill for impairment, either at the operating level, meaning a business segment, or at a lower organisational level. Impairment must also necessarily be an annual accounting exercise, and can occur at even shorter intervals, if events indicate that the recoverability of the carrying amount needs reassessment. The procedure for assessment of impairment under IFS 142 comprises of two steps. The fist step involves a comparison of the computed fair value of a business segment with the carrying amount of the concerned unit, including the goodwill. In cases where the book value of the unit exceeds its fair value, no further exercise needs to take place and valuation of goodwill remains unchanged. If, however, the fair value of the reporting unit is lesser than its carrying amount, the procedure for treatment of impairment of goodwill requires application of a second step. Calculation of goodwill impairment, under US GAAP, occurs through the determination of the excess of the carrying amount of goodwill, over its fair value. The computation for this is simple and constitutes of determining the fair value of goodwill by allocating fair value to the various assets and liabilities of the reporting unit, similar to the procedure used for the determination of goodwill in a business combination. The calculated erosion in goodwill needs reflection in income statement as an impairment charge in the computation of income. In certain cases, negative goodwill can arise because of the fixation of a price less than that warranted by valuation of physical assets. US accounting procedures categorically specify the treatment of negative goodwill. The excess of fair value over the purchase price, requires its allocation, on a pro rata basis, to all assets, other than current assets, financial assets, assets that have been chosen for sale, prepaid pension investments, and deferred taxes. Any negative goodwill remaining after this exercise finds recognition in financial statements as an extraordinary gain. b. The Position under IFRS Goodwill, in accounting treatment under the IFRS, has evolved through stages similar to US GAAP, and is not amortised any longer, as was the case in the past. While the basic principle of treatment of goodwill has become similar under both the methods, differences do exist in the â€Å"nuts and bolts† treatment of the issue at the ground level, in the actual preparation of financial statements. IFRS procedures, like US GAAP, have phased out the method of â€Å"pooling of interests† for accounting of acquisitions and business combinations, a nd require the application of the â€Å"purchase† accounting concept. Many national GAAPs allowed the use of pooling, as was also the case in IFRS, under IAS 22, in the absence of identification of an acquirer. IFRS 3, which became applicable from March 31, 2004, however made it mandatory for EU companies to identify the acquirer, adopt the purchase method of accounting for accounting of business combinations, and discontinue amortisation of goodwill for accounting periods beginning after that date. Nowadays, the acquirer, at the date of the acquisition, needs to allocate the cost of the business combination by recognizing, at fair value, the identifiable assets, liabilities and contingent liabilities of the acquiree, as well as those of minority shareholders. The difference between purchase price and value of net assets comprises the money paid for goodwill. In certain cases, some intangible assets form part of the assets acquired for the business combination. These become e ligible for separate recognition on the fulfilment of certain conditions, to elaborate, these assets they need to be separately identifiable, controlled by the entity, capable of yielding future economic benefits, and have values capable of measurement. IFRS procedures stipulate that goodwill, on an ongoing basis, will be subject to measurement at cost, and annual tests for impairment, in accordance with IAS 36. This is a significant departure from the provisions of IAS 22, which treated goodwill as a wasting asset, needing amortisation over a specific period. Negative goodwill, as stated earlier, arises when the cost of acquisition is less than the fair value of the identifiable assets, liabilities and contingent liabilities of the company. While its occurrence is rare, it can well arise in the case of acquisition of loss-making units, or if a distress sale gives a company the opportunity to acquire a bargain. Negative goodwill, as per IFRS 3, needs immediate recognition in the profit and loss statement for the period. This requirement also differs significantly from previous accounting practice that allowed the allocation of negative goodwill over a range of assets, or allowed it to be amortised over a period. Goodwill, as stated earlier, is not eligible for amortisation, with effect from March 31, 2004, under IFRS procedures and is now considered to be an asset with indefinite life. It however requires the application of a stringent impairment test, either annually, or if the need arises, at shorter notice, for assessment of erosion in value. In the event of impairment, the Profit and Loss Account is charged with the computed impairment amount to ensure the immediate highlighting of poorly performing acquisitions. The accounting treatment of goodwill, as stipulated by IFRS 3, is not that of a steadily wasting asset, but one with indefinite life; and with a value linked to the performance of the unit. The test for impairment of goodwill under the IF RS, unlike US GAAP, occurs at the level of the Cash Generating Unit, or a group of CGUs, representing the lowest level at which internal managements monitor goodwill. The IFRS also stipulates that the level for assessing impairment must never be more than a business or a geographical segment. The test is a one-stage process wherein the recoverable amount of the CGU is calculated on the basis of the higher of (a) the fair value less costs to sell or (b) the value in use, and then compared to the carrying amount. In case the assessed value is lesser than the carrying cost, an appropriate charge is made to the profit and loss account. The goodwill appropriated to the CGU is reduced pro rata. The IFRS requires detailed disclosures to be published regarding the annual impairment tests. These include the assumptions made for these tests, and the sensitivity of the results of the impairment tests to changes in these assumptions. M/s Radebaugh, Gray and Black, in their book â€Å"Intern ational Accounting and Multinational Enterprises† stress that these disclosures help in giving shareholders and financial analysts more information about acquisitions, their benefits to the acquiring company and the efficacy and reasonableness of impairment reviews. Both the IFRS and US GAAP have certain commonalities in the accounting treatment of intangible assets. In case of acquisitions, managements are enjoined to isolate specific intangible assets and value them separately from goodwill. All these assets have to be identified, valued and indicated separately in the balance sheet. The list of intangible assets that need to be recognised separately, because of IFRS 3, is extensive and includes a host of things like patents, brands, trademarks and computer software. IFRS 3 demands that the identification and valuation of intangible assets should be a rigorous process. Experts however feel that while valuing intangibles is essentially associated with subjectivity, logical mental application and the use of working sheets should be able to satisfy the demands of regulators. IAS 38 deals with a number of issues that pertain to intangible assets other than goodwill. This standard, as per experts, represents a major change from previous practice. It allows firms to capitalise some internally generated intangible assets, and attempts to correct the incompleteness of previous accounting practices in this regard. This argument, however, very possibly exaggerates its implications because IAS 38 primarily tries to recognise a wider range of acquired intangibles, but only at the expense of residual goodwill, and maintains a continuum with the historical British approach of treating internally developed intangibles as expenses. Items like Research and Development Costs in Process, costs that were ineligible for recognition before the acquisition, are now allowable as capital items in the balance sheet of the acquirer. On initial recognition as part of the ac quisition process, the cost of the intangible is measured as the fair value at the date of acquisition. The fair value of an intangible assert is the amount the entity would have paid for the asset at the acquisition date in an arm’s length transaction between knowledgeable and willing parties, on the basis of the best information available. (IFRS and US GAAP, 2005) IFRS procedures call for expensing of all research cost. Assessment of development costs for the purpose of valuation for long-term benefits is now essential for their amortisation over their determined benefit period. Capitalisation of development costs is allowed only when development efforts result in the creation of an identifiable asset, e.g. software or processes, whose beneficial life and costs can be measured reliably. If however a Research and Development project is purchased, IFRS provides for the treatment of the whole amount as an asset, even though part of the cost reflects research expenses. In th e case of further costs being incurred on the project after its purchase, research costs will need to be expensed out while development costs will be eligible for capitalisation, subject to their meeting the required criteria. US GAAP however stipulates that all Research and Development costs be immediately charged to expenses. Certain development costs pertaining to website and software development are however allowed to be capitalised. Research and Development assets, if acquired are valued at fair value under the purchase method. However if the assets do not have any alternate use they are immediately charged to expense. 3. Conclusion Both methods of accounting, US GAAP and IFRS, while they have taken different routes, and have changed their accounting standards at different times, have now arrived at similar positions in the treatment of a number of items, including valuation and treatment of goodwill. The differences that exist today in this area are primarily in the a rea of detailing, methods of computation and in the treatment of individual components of the accounting requirements, like for example, in the computation of impairment of goodwill. Both PWC and Deloitte publications opine that US GAAP will most probably move further towards the IFRS position intangible assets as part of the ongoing convergence exercise. Bibliography Bullen, H, and Cafini, R, 2006, Accounting Standards Regarding Intellectual Assets, UN Department of Economic and Social Affairs, Retrieved April 16, 2007 from unstats.un.org/unsd/nationalaccount/ia10.pdf FASB: Financial Accounting Standard Board, 2006, Retrieved April 16, 2007 from www.fasb.org IFRS and US GAAP, 2005, IAS Plus Deloitte, Retrieved April, 2007 from deloitte.net/dtt/cda/doc/content/dtt_audit_iasplusgl_073106.pdf Higson, C and Sproul, M, 2005, Coping with IFRS, London Business School, Retrieved April 16, 2007 from www.london.edu/assets/documents/PDF/Chris_Higson_paper_IFRS.pdf Intangibl e assets: brand valuation, 2004, IFRS News Brand Valuation, Retrieved April 16, 2007 from www.pwc.com/gx/eng/about/svcs/corporatereporting/IFRSNewsCatalogue.pdf Lycklama, M.P., 2005, Goodwill and value creation of acquisitions, Retrieved April 16, 2007 from www.bedrijfswetenschappen.leidenuniv.nl/content_docs/PDF/goodwill_and_value_creation_of_acquisitions.pdf Nobes, C. and Parker, R., 2004, Comparative International Accounting (9th edition), Prentice Hall Radebaugh, L.H., Gray, S.J., Black, E.L., 2006, International Accounting and Multinational Enterprises, 6th edition, John Wiley and Sons, inc., USA Roberts, C, Weetman, P, and Gordon, P, 2005, International Financial Reporting: A Comparative Approach, 3rd edition, FT Prentice Hall, USA Similarities and Differences, 2005, A comparison of IFRS, US GAAP and Belgian GAAP, PriceWaterhouseCoopers, Retrieved April 16, 2007 from www.pwc.com/extweb/pwcpublications.nsf/docid/74d6c09e0a4ee610802569a1003354c8 Don’t waste time! 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