Accounting for goodwill: A literature review

Abstract

This paper critically reviews the main empirical research on goodwill accounting with the purpose of informing and contributing to current debates: the application of a systematic amortisation plus an impairment when required (amortisation model) or an annual impairment-only test (impairment model). Using the main databases (ABI inform, ProQuest Central, Emerald, Science Direct, Scopus and Google Scholar), this critical review highlights the difficulty to resolve doubts at this stage. Arguments for and against the amortisation and impairment models are found. Nevertheless, going back to a systematic amortisation does not seem to be the solution but the impairment test model is eliminated. We also note that there is more room for improvement of the impairment model. Thus, we provide some guidelines and recommendations to improve it. Finally, we find that further investigation can be carried out to fill the gaps identified in the literature and we make recommendations for future research projects.

A review of research performed on the approach to the subsequent measurement of goodwill

“…Techniques to measure goodwill impairment losses have become more sophisticated by leveraging cash flow analyses, market-based approaches and quantitative risk assessments, which provide more accurate and timely impairment decisions (Martínez et al 2023;Seetharaman et al 2004). Advanced measurement methodologies better reflect the current economic landscape and allow for more informed strategic decisions for organisations.…”

“…The United States' Financial Accounting Standards Board (FASB) followed suit and modified its standards in 2018 to allow private entities increased discretion in accounting for goodwill by way of an election between amortisation and impairment approaches. This has allowed entities, particularly those with less resources, to be able to account for goodwill without incurring excessive costs associated with impairment estimates (Martínez, Rubio & Morales 2023). This adoption does, however, impact the comparability of financial information (Kaipova, Assanova & Serikbayeva 2022).…”