10 Years Impairment-Only Approach – Stakeholders’ Perceptions and Researchers’ Findings
69 Pages Posted: 12 Sep 2014
Date Written: September 10, 2014
The IASB emphasizes the demand for academic research in the standard setting process. Ewert and Wagenhofer (2012) specifically refer to the post-implementation review (PIR) process and point out that “academics can, and should, play a significant role in a PIR.” We follow these requests and aim to contribute to the current PIR on IFRS 3 Business Combinations. In particular, we evaluate the impact of the introduction of the impairment-only approach for goodwill accounting in 2004 from two perspectives. Firstly, we analyze the comment letters submitted by stakeholders in response to the Request for Information (RfI) during the PIR. Secondly, we systematically review related academic literature. The analysis of comment letters sheds light on the advantages and disadvantages of the goodwill impairment test perceived by interested stakeholders. By reflecting on these perceptions with respect to academic research, we identify differences between the two perspectives as well as research opportunities. Our findings show that stakeholders’ views about the usefulness of the information provided by the impairment test are mixed, while they share widespread concerns about the cost-benefit relation and the extent of discretion involved in the tests. Academic research tends to support the assumption that the impairment-only approach increases the usefulness of financial reporting. However, the concerns expressed about subjectivity and managerial discretion are confirmed by a number of empirical studies. In this dilemma, we advise the IASB not to withdraw the current concept immediately, but rather recommend some short-term measures to address areas of improvement identified in the PIR. In the long-term, we need a larger project – reasonably in cooperation with the FASB – in which the subsequent treatment of goodwill is holistically reviewed.
Keywords: Post-Implementation Review, Business Combinations, Goodwill, Impairment, IFRS 3, IAS 36
JEL Classification: M41
Suggested Citation: Suggested Citation