Is the Goodwill Impairment-Only Model Broken? An Examination of Post-Acquisition Accounting for Goodwill versus Other Intangibles

45 Pages Posted: 17 Jan 2024

See all articles by Anne Beatty

Anne Beatty

Ohio State University (OSU) - Department of Accounting & Management Information Systems

Scott Liao

University of Toronto - Rotman School of Management

Joseph Weber

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Date Written: January 24, 2024

Abstract

Concerns that discretion in post-acquisition accounting leads to inflated goodwill balances led standard setters to consider either modifications to the current impairment-only model or a return to the amortization and impairment model currently used for finite-lived intangibles. We compare goodwill accounting to that of finite-lived intangible assets for the same firm during the same period and examine many important subtleties in the goodwill impairment testing model using previously underexplored disclosures. Our comparison of goodwill and intangible asset balances provides no evidence that impairment-only accounting has led to inflated balances. Our examination of potential sources of discretion in impairment recognition provides marginal evidence of reductions in impairments associated with the use of control premia allowed in the accounting standards but indicates significantly increased impairments associated with adjustments for the shielding effects of off-balance-sheet intangibles and for decreases in the headroom between market and book result in impairments that are not currently required in the accounting standards. Our analyses of goodwill allocation by reporting units provides some support for concerns that reducing requirements to allocate goodwill by reporting units might lead to reduced impairments.

Keywords: goodwill, impairment, intangibles

JEL Classification: M41

Suggested Citation

Beatty, Anne L. and Liao, Wei-Yi (Scott) and Weber, Joseph Peter, Is the Goodwill Impairment-Only Model Broken? An Examination of Post-Acquisition Accounting for Goodwill versus Other Intangibles (January 24, 2024). Available at SSRN: https://ssrn.com/abstract=4685107 or http://dx.doi.org/10.2139/ssrn.4685107

Anne L. Beatty

Ohio State University (OSU) - Department of Accounting & Management Information Systems ( email )

2100 Neil Avenue
Columbus, OH 43210
United States

Wei-Yi (Scott) Liao (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Joseph Peter Weber

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States
617-253-4310 (Phone)

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