Goodwill Impairment Testing Under IFRS - A False Impossible Shore?

34 Pages Posted: 25 Jul 2008

Date Written: July 24, 2008

Abstract

The transition to IFRS based reporting has resulted in fundamental departures from many of the long accepted norms embedded in indigenous GAAP systems now superseded in IFRS adopting jurisdictions. The rules relating to goodwill accounting, measurement and reporting represent an excellent case in point, the traditionally dominant capitalise and amortise regime having been disposed of in favour of an impairment testing regime pursuant to which periodic amortisation charges are no longer required. There has been much criticism of this new impairment testing regime, principally along the lines that it results in an increased potential for opportunism in financial statement preparation due to the subjective and unverifiable nature of a range of judgements necessary to the execution of the impairment testing process. In this paper, we add to the extant literature's catalogue of concerns by documenting systematic non compliance with the disclosure requirements of AASB 136 - Impairment of Assets. We argue that a key problem resulting from this phenomenon is a decline in financial statement comparability. At the policy level, we raise questions as to the implications of the complexity of the IFRS based impairment testing regime both from the preparer and audit perspective.

Keywords: Goodwill, Impairment, Financial reporting, Creative accounting, Australia

JEL Classification: M41, M43, M44, M47, M49

Suggested Citation

Carlin, Tyrone M. and Finch, Nigel, Goodwill Impairment Testing Under IFRS - A False Impossible Shore? (July 24, 2008). Available at SSRN: https://ssrn.com/abstract=1173382 or http://dx.doi.org/10.2139/ssrn.1173382

Tyrone M. Carlin (Contact Author)

Southern Cross University ( email )

Military Road
Lismore, New South Wales 2480
Australia

HOME PAGE: http://https://www.scu.edu.au/about/vice-chancellor/

Nigel Finch

Saki Partners ( email )

Australia

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