The Value of High Quality Auditing in Enforcing and Implementing IFRS: The Case of Goodwill Impairment
39 Pages Posted: 15 Jan 2010
Date Written: January, 14 2010
Abstract
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: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Purchase Versus Pooling in Stock-for-Stock Acquisitions: Why Do Firms Care
By David Aboody, Ron Kasznik, ...
-
Evidence on the Use of Unverifiable Estimates in Required Goodwill Impairment
By Karthik Ramanna and Ross L. Watts
-
Leading Indicators of Goodwill Impairment
By Carla Hayn and Patricia J. Hughes
-
Causes and Consequences of Goodwill Impairment Losses
By Zining Li, Pervin K. Shroff, ...
-
Evidence on the Effects of Unverifiable Fair-Value Accounting
By Karthik Ramanna and Ross L. Watts
-
Goodwill Valuation Effects of the Initial Adoption of SFAS 142
By Changling Chen, Mark J. Kohlbeck, ...
-
The Information Content of Goodwill Impairments and the Adoption of SFAS 142
By Daniel A. Bens, Wendy Heltzer, ...
-
Early Impressions of Australia's Brave New World of Goodwill Impairment
By Tyrone M. Carlin and Nigel Finch
-
Goodwill Impairment Testing Under IFRS - A False Impossible Shore?
By Tyrone M. Carlin and Nigel Finch