The Value of High Quality Auditing in Enforcing and Implementing IFRS: The Case of Goodwill Impairment

39 Pages Posted: 15 Jan 2010

See all articles by Donald J. Stokes

Donald J. Stokes

Monash University

John Webster

Monash University - Department of Accounting

Date Written: January, 14 2010


We examine the value of higher audit quality in enforcing and implementing International Financial Reporting Standards (IFRS) using the recent changes in goodwill accounting regulation. IFRS requires management to test for goodwill impairment and write off impairment losses against income. Accounting regulators claim that the IFRS impairment regime better reflects the underlying economic attributes of goodwill. Our results indicate that this claim depends on the enforcement and implementation of IFRS standards by higher quality assurance providers. We develop arguments as to why choosing a Big 4 auditor gives greater assurance of IFRS enforcement and implementation. We find support for this proposition by showing that goodwill impairment charges under IFRS better reflect the underlying economic value of the goodwill only in the presence of high quality auditing and that this is most apparent in ensuring that no goodwill impairment charges are made against income where this supported by the firm’s circumstances.

Keywords: IFRS, audit quality, accounting quality, goodwill, impairment

JEL Classification: M44, M49

Suggested Citation

Stokes, Donald and Webster, John, The Value of High Quality Auditing in Enforcing and Implementing IFRS: The Case of Goodwill Impairment (January, 14 2010). Finance and Corporate Governance Conference 2010 Paper. Available at SSRN: or

Donald Stokes

Monash University ( email )

Department of Accounting and Finance
P O Box 197
Caulfield East, Victoria 3145

John Webster (Contact Author)

Monash University - Department of Accounting ( email )

Building 11E
Clayton, Victoria 3800

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