Accounting for goodwill: The transition from amortisation to impairment – an impact assessment

Wiese, Anna Johanna

doi:10.1108/10222529200500007

Cited by 11 publications

(6 citation statements)

References 6 publications

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“…Another possible area of auditors' difficulty arises when the client uses independent valuation services for valuing CGUs and goodwill. Employing professional valuation services is now a widespread practice (Wiese, 2005)[12]. Professional valuation firms are not subject to the use of applicable accounting standards and principles.…”

Section: Effect Of Audit Quality and Accountingmentioning

confidence: 99%

Effect of audit quality and accounting and finance backgrounds of audit committee members on firms’ compliance with IFRS for goodwill impairment testing

Bepari

Mollik

2015

Journal of Applied Accounting Research

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Purpose – The purpose of this paper is to examine the effect of audit quality on firms’ compliance with IFRS for goodwill impairment testing and disclosure. Differences in the compliance among the clients of Big-4 auditors and between the clients of Big-4 and non-Big-4 auditors are examined. This study also examines the effect of audit committee (AC) members’ accounting and finance backgrounds on firms’ compliance with IFRS for goodwill impairment testing and disclosure. Design/methodology/approach – Different univariate tests, multivariate regressions and fixed effect panel regressions have been used to examine the hypotheses. The sample includes 911 firm-year observations for the period of 2006-2009. Findings – A statistically significant difference in compliance levels has been found between the clients of Big-4 and non-Big-4 auditors. The compliance levels of the clients of Big-4 auditors have also been found to be significantly different. The findings also suggest that AC members’ accounting and finance backgrounds are positively associated with firms’ compliance with IFRS for goodwill impairment testing and disclosure. Research limitations/implications – The single country context and the single standard context limit the generalizability of the findings. Practical implications – The findings of this study have important implications for researches in accounting, finance and corporate governance that usually consider Big-4 auditors vs non-Big-4 auditors as a proxy for audit quality. The results also reinforce the importance of developing institutional mechanisms such as high-quality auditing or corporate governance (AC members’ expertise) to encourage firms’ compliance with IFRS. Originality/value – Firms’ compliance with IFRS for goodwill impairment testing is not essentially the same for the clients of all Big-4 auditors in Australia, suggesting that the quality of services provided by Big-4 auditors significantly differ from one another in enforcing their clients to compliance with IFRS. The lax enforcement on the part of auditors and the regulatory inaction in this regard may point to teething difficulties and systematic deficiencies in the move towards the impairment regime and fair value accounting. The findings also bear an important message for the move towards the harmonization of accounting practices.

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Section: Effect Of Audit Quality and Accountingmentioning

confidence: 99%

Effect of audit quality and accounting and finance backgrounds of audit committee members on firms’ compliance with IFRS for goodwill impairment testing

Bepari

Mollik

2015

Journal of Applied Accounting Research

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“…In addition, the technical complexities of the impairment regime mean that it may be difficult for firms to be fully compliant with each provision, possibly due to misinterpretation. Additional time and cost are required for firms to estimate the value (that is, the recoverable amount) of CGUs annually (Wiese ; Wines et al. ).…”

Section: Literature and Technical Reviewmentioning

confidence: 99%

Disclosure of Goodwill Impairment under AASB 136 from 2005–2010

Guthrie

Pang

2013

Australian Accounting Review

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“…Goodwill amortization is based on the premise that the useful life of goodwill is finite. According to Wiese (2005), the value of a business, and consequently its goodwill, does not necessarily deteriorate as it can be maintained, or even augmented, by diligent management and the realization of growth options. While this begs the question of where (recorded) purchased goodwill and (unrecorded) internally generated goodwill begin and end, it nonetheless raises the argument that purchased economic goodwill does not necessarily diminish according to a systematic accounting amortization pattern.…”

Section: Theoretical Background and Hypothesismentioning

confidence: 99%

Does a goodwill impairment regime better reflect the underlying economic attributes of goodwill?

Chalmers

Godfrey

Webster

2010

Accounting & Finance

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IFRS adoption transformed the accounting treatment for goodwill in many countries. Instead of amortizing goodwill, firms now test for its impairment and write off impairment losses against income. Accounting standard-setting bodies claim that an impairment regime better reflects the underlying economic value of goodwill than systematic amortization. We investigate this claim by comparing the association between goodwill accounting charges against income and firms' economic investment opportunities in amortization and impairment regimes. We find that the association between firms' goodwill charges against income and the firms' investment opportunities is stronger during the IFRS regime than the AGAAP regime. This indicates that, as claimed, impairment charges better reflect the underlying economic attributes of goodwill than do amortization charges.

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Accounting for goodwill: The transition from amortisation to impairment – an impact assessment

Cited by 11 publications

References 6 publications

Effect of audit quality and accounting and finance backgrounds of audit committee members on firms’ compliance with IFRS for goodwill impairment testing

Effect of audit quality and accounting and finance backgrounds of audit committee members on firms’ compliance with IFRS for goodwill impairment testing

Disclosure of Goodwill Impairment under AASB 136 from 2005–2010

Does a goodwill impairment regime better reflect the underlying economic attributes of goodwill?

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