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New Study Suggests Auditors Are Hurting M&A (aka Get Your Valuation Done Right the First Time)

New Study Suggests Auditors Are Negatively Impacting (aka Get Your Valuation Done Right the First Time)


A provocative new study out of Singapore Management University suggests that acquirors may seek to avoid intangibles via acquisition because they fear scrutiny from the PCAOB over impairment matters. The study suggests that investing internally in corporate innovation is preferred for the creation of intangibles. The paper, “The Effect of PCAOB Inspections on Corporate Innovation: Evidence From Deficiencies About the Valuation of Intangibles,” examines the economic consequences on corporate innovation when PCAOB inspections cite auditors for insufficient procedures in auditing the valuation of intangibles.


The author of the study argues that, because audit deficiencies in fair value measurements trigger larger and timelier impairment of intangibles, acquirors have less discretion in delaying the recognition of losses. While timely recognition of impairments is the goal of the PCAOB, acquirors may not want to admit that an acquisition fell short of expectations. Because of this, the author reasons, the PCAOB effectively alters the measurement of intangibles and perhaps unintentionally affects how clients invest in corporate innovation.


While this seems like a bit of stretch, the true moral of the story is that purchase price allocation valuations can be challenging. Contact Eton today, to get your valuation done right, the first time.


See: Kim, Jungbae, The Effect of PCAOB Inspections on Corporate Innovation: Evidence from Deficiencies about the Valuation of Intangibles (July 31, 2022). Available at SSRN: https://ssrn.com/abstract=4177115 or http://dx.doi.org/10.2139/ssrn.4177115

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