Information or noise? Which acquired intangibles deserve their own line – and which could be folded into goodwill?
When one company buys another, it puts a value on the intangibles it acquires – patents, licenses, trademarks, brands. These acquired intangibles now make up roughly one third of the average M&A deal and add billions of dollars to acquirers’ balance sheets. Standard setters are repeatedly debating whether firms should keep reporting them separately or fold them into a single catch-all number called goodwill — the residual amount left after the other identifiable assets and liabilities of an acquired business have been valued. In TRR 266 Working Paper No. 65 our researchers Sönke Sievers (Paderborn University) and Alexander Liss (KU Leuven) with their co-author Wayne Landsman (UNC Chapel Hill) ask whether these reported figures actually carry information that investors use. Their research shows: The answer depends on the type of asset and its useful life.
Where intangibles come from decides their fate
Recognizing an item on the balance sheet is, according to US-GAAP, a cost-benefit call: a number belongs there when it tells investors something they would otherwise miss, and when it can be measured reliably enough to be worth the effort. Few items test that judgment as hard as intangibles – assets that, unlike a machine, have no physical form.
When a firm builds them itself, through R&D, advertising, or human capital, the spending is usually expensed as incurred and no asset appears on the balance sheet. When a firm buys them by acquiring a business or purchasing, for example, a patent or an FCC license, they go on the balance sheet at fair value. A definite-lived intangible is expected to generate benefits for a limited period and is then written down over that useful life. An indefinite-lived intangible has no foreseeable limit to its useful life. Like goodwill, it is not amortized but tested once a year for impairment – a test that leans heavily on management’s own assumptions.
The stakes for preparers, investors, and standard setters are large. As fair values rest on assumptions that are often hard to verify, critics question whether the reported numbers are reliable enough to help investors at all. Both the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have wrestled with this for years: the FASB’s proposal on intangible assets and goodwill drew more than 100 comment letters expressing widely differing views, and the IASB is now reviewing IAS 38 Intangible Assets to consider how the accounting for intangibles could be improved.
A new approach to assessing acquired intangibles
Earlier studies look at the values assigned at the moment of acquisition. This study looks at something different: the net amounts that remain on the balance sheet at each annual reporting date after amortization and impairment have been applied. We hand-collected these figures from the notes to annual reports on SEC EDGAR. The resulting sample consists of 35,013 firm-year observations from 3,859 US-listed firms over 2002 to 2021 and covers at least 70 percent of total US market capitalization in every year.
We sort each intangible in two ways: 1. by useful life (definite versus indefinite) and 2. by type (technology, customer, contract, marketing). Then we ask two questions: are the reported amounts reflected in the firm’s share price, and do they help predict operating cash flows one, two and three years ahead? The key question for stakeholders is whether an intangible should be reported separately or folded into goodwill. We therefore use goodwill as our benchmark.
Following the FASB’s own conceptual framework (Concept Statement No. 8), we interpret the results using three questions:
- Does the amount carry information? If it is linked to neither prices nor future cash flows, it fails the information test and should not be recognized at all.
- If it does, is that information different from goodwill? If so, folding it into goodwill would lose information, so it should be reported separately.
- Or is the information similar to goodwill? If so, the case for separate reporting is weak and folding it into goodwill is defensible.
These tests show whether the reported amounts are associated with share prices and future cash flows. They do not show that the amounts themselves cause share prices to move. However, they capture only the benefit side of the equation. How hard and costly each amount is to measure and audit is the other half, which regulators must weigh against those benefits.
Useful life drives differences in prices and cash flows
Most acquired intangibles are positively linked to share prices and future cash flows. The clearest pattern is a ranking that holds for both investor relevance and cash flow forecasting: definite-lived intangibles come out on top, followed by goodwill and then indefinite-lived intangibles.
Investors give definite-lived intangibles more weight than goodwill, and these assets predict future cash flows most strongly at every horizon. Indefinite-lived intangibles sit at the other end: investors place less weight on their reported amounts than on goodwill, consistent with viewing those amounts as less reliable. Despite these differences, both carry information that differs from goodwill, supporting their separate recognition and reporting.
The type of asset matters
Splitting definite and indefinite intangibles into technology, customer, contract and marketing categories shows there is no single answer. Technology is the most informative category by a clear margin, with the largest effects in both the pricing and the cash-flow tests.
Three groups carry real information and behave differently from goodwill, suggesting that separate reporting is preferable: definite technology, indefinite technology, and indefinite marketing intangibles. Two groups – customer intangibles and indefinite contract intangibles – are informative but statistically indistinguishable from goodwill. Folding them into goodwill would therefore lose little information, which is precisely what the FASB’s middle option proposes for these assets. One group – definite marketing intangibles, such as short-lived trademarks and non-compete agreements – shows no link to prices or cash flows at all. On the information test, these arguably should not be on the balance sheet in the first place.
What it means for standard setters and investors: a targeted middle path
The evidence points away from both extremes. Folding everything into goodwill would come at an information cost. For most acquired intangibles, the reported amounts track future performance in ways goodwill does not. Bundling them in would discard information that investors otherwise use. But “recognizing everything” does not fit either. Definite marketing intangibles look uninformative, so the case for carrying them at all is weak.
For standard setters like the FASB and the IASB, our data support a targeted middle path. The strongest case for separate reporting is definite and indefinite technology. For customer and indefinite contract intangibles, the choice is less clear: folding them into goodwill would result in little information loss. Definite marketing intangibles are candidates for no recognition at all.
For investors, the findings show that the accounting label itself matters: both an intangible’s useful life and its type are linked to how much weight investors place on its reported amount. Definite and indefinite technology intangibles stand out as the most informative.
This paper is TRR 266 Working Paper No. 65 (October 2021, revised December 2025), currently under revise-and-resubmit at the Review of Accounting Studies.
To cite this blog: Landsman, W., Liss, A., & Sievers, S. (2026). Information or noise? Which acquired intangibles deserve their own line – and which could be folded into goodwill. TRR 266 Accounting for Transparency Blog.
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