Comparison of Discount Rates Disclosure Analysis in Goodwill Impairment Testing Among Singapore Listed Firms

Journal of Economics and Development, Vol. 15, Iss. 1, pp. 5-31

27 Pages Posted: 27 Sep 2013

See all articles by Dung Manh Tran

Dung Manh Tran

(NEU) National Economics University of Vietnam

Khairil Faizal Khairi

Universiti Sains Islam Malaysia (USIM), Malaysia

Nur Hidayah Laili

Macquarie Graduate School of Management

Date Written: April 17, 2013

Abstract

This study presents some evidence of discount rate selection on goodwill impairment testing under the new requirements of FRS 36. The selection of discount rates is believed to be an important key factor that affects the outcome of impairment assessment, especially when using the method of value in use. This study objectively examines the Singapore listed firm’s selection of discount rates disclosed, and then tests and compares the variation between discount rates disclosed by firms for the goodwill impairment testing with independently generated estimates of firm specific risk adjusted discount rates for multi year samples of 2007, 2006 and 2005.

In order to achieve the objective of this study, the Capital Asset Pricing Model (CAPM) is chosen because it describes the relationship between risk and expected return and that is used in the pricing of risky securities. For the purposes of this paper, the final research sample consists of 142, 127 and 86 firms that employed the value in use method in goodwill impairment testing and defined only a single discount rate in 2007, 2006 and 2005 respectively. The results show most of the firms understated their discount rates for 2005, while in 2006 and 2007 some firms over-stated their discount rate when compared with an independently estimated risk adjusted discount rate. The results also indicate that the Singapore listed firms have difficulties in the discount rates disclosure which may in turn limit the decision usefulness of their financial disclosures by potentially diluting the robustness of the impairment testing.

Keywords: Discount rate selection, goodwill accounting, impairment testing, FRS 36

Suggested Citation

Tran, Dung Manh and Khairi, Khairil Faizal and Laili, Nur Hidayah, Comparison of Discount Rates Disclosure Analysis in Goodwill Impairment Testing Among Singapore Listed Firms (April 17, 2013). Journal of Economics and Development, Vol. 15, Iss. 1, pp. 5-31. Available at SSRN: https://ssrn.com/abstract=2331132

Dung Manh Tran

(NEU) National Economics University of Vietnam ( email )

Vietnam

Khairil Faizal Khairi (Contact Author)

Universiti Sains Islam Malaysia (USIM), Malaysia ( email )

Bandar Baru Nilai
Nilai, Negeri Sembilan 71800
Malaysia
+6067986427 (Phone)

Nur Hidayah Laili

Macquarie Graduate School of Management ( email )

99 Talavera Road
Sydney, NSW 2113
Australia

HOME PAGE: http://www.mq.edu.au

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