The Optional Qualitative Assessment in Impairment Tests

54 Pages Posted: 6 Feb 2019 Last revised: 6 Aug 2020

See all articles by Dirk E. Black

Dirk E. Black

University of Nebraska at Lincoln - School of Accountancy

Jake Krupa

University of Miami

Miguel Minutti-Meza

University of Miami - Department of Accounting

Date Written: July 31, 2020

Abstract

The qualitative assessment allowed after December 2011 is intended to reduce the complexity and costs of impairment tests for goodwill and other indefinite-lived intangibles. This assessment is unique because it gives an unconditional option to companies and depends on subjective qualitative judgment. We demonstrate that firms using this option have comparatively better financial performance and face higher expected costs for conducting quantitative tests. Using a difference-in-differences research design, we show that firms using this option have a marginally higher incidence of impairments, suggesting that the qualitative assessment does not systematically allow companies to avoid write-downs. We do not find consistent evidence that this option decreases the timeliness of impairments or increases monitoring costs for auditors, regulators, and investors. Our study provides evidence about the intended and unintended consequences of a revised impairment approach and speaks to the broader issue of allowing unconditional options and qualitative judgments in financial reporting.

Keywords: Goodwill, intangibles, impairment, qualitative assessment, fair value, ASC 350, SFAS 142, ASU 2011-08

JEL Classification: M41, M42, M48

Suggested Citation

Black, Dirk E. and Krupa, Jake and Minutti-Meza, Miguel, The Optional Qualitative Assessment in Impairment Tests (July 31, 2020). University of Miami Business School Research Paper No. 3322166, Available at SSRN: https://ssrn.com/abstract=3322166 or http://dx.doi.org/10.2139/ssrn.3322166

Dirk E. Black (Contact Author)

University of Nebraska at Lincoln - School of Accountancy ( email )

307 College of Business Administration
Lincoln, NE 68588-0488
United States

Jake Krupa

University of Miami ( email )

Coral Gables, FL 33124
United States

Miguel Minutti-Meza

University of Miami - Department of Accounting ( email )

Coral Gables, FL 33146-6531
United States
305-284-6287 (Phone)

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