Advance Australia Fair: The Quality of AASB 136 Fair Value Disclosures Down Under

MGSM Working Paper No. 2008-1

19 Pages Posted: 7 Mar 2008

See all articles by Tyrone M. Carlin

Tyrone M. Carlin

Southern Cross University; The University of Sydney Business School

Nigel Finch

Saki Partners

Date Written: January 2008


The introduction of an impairment test for goodwill under IFRS is seen as another step toward moving financial accounting and reporting from its traditional historical cost paradigm to one of fair value. This regulatory change has been the subject of a growing body of literature which has often criticised many of the technical aspects of the new standard and highlighted the increased discretion it has afforded managers in the determination of periodic profit. One example of this increased discretion is the opportunity to undertake an impairment test using a methodology based on value in use or fair value less cost to sell. While previous empirical studies examining the contemporary practice of goodwill impairment testing in Australian have focused on the large number of firms that have elected a value in use methodology, this paper examines the less popular practice of impairment testing using fair value less cost to sell by drawing from a sample of 200 of the largest Australian firms. One average, these firms tended to have greater levels of goodwill suggesting a higher potential sensitivity to impairment losses, yet they recorded a lower incidence of impairment recognition compared to those firms using a value in use methodology. Our analysis also identifies a systematic failure among these firms to comply with the basic disclosure requirements required under the standard which increases the likelihood of unverifiable estimates polluting financial statements. Our results assist in understanding the impact the introduction of IFRS brings to the reliability of financial reporting in Australia, and identifies issues that may assist regulators and standard setters in shaping future policy.

Keywords: Fair value, impairment, goodwill, IFRS

JEL Classification: M41, M44, M47, G38

Suggested Citation

Carlin, Tyrone M. and Finch, Nigel, Advance Australia Fair: The Quality of AASB 136 Fair Value Disclosures Down Under (January 2008). MGSM Working Paper No. 2008-1. Available at SSRN: or

Tyrone M. Carlin

Southern Cross University ( email )

Lismore, New South Wales 2480

The University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
+ 61 2 9036 7230 (Phone)
+61 2 9351 7471 (Fax)


Nigel Finch (Contact Author)

Saki Partners ( email )


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