Goodwill Impairment - An Assessment of Disclosure Quality and Compliance Levels By Large Listed Australian Firms

MGSM Working Paper No. 2007-8

26 Pages Posted: 14 Feb 2007  

Tyrone M. Carlin

The University of Sydney Business School

Nigel Finch

Saki Partners

Guy Ford

Macquarie University - Graduate School of Management

Date Written: January 2007

Abstract

The adoption of A-IFRS has resulted in the introduction of fundamental changes to the Australian accounting and reporting regime for goodwill. The impairment testing led approach to goodwill reporting required under A-IFRS results in a materially different approach to goodwill valuation for balance sheet purposes and to the nature and timing of the influence of goodwill as an asset class on the determination of periodic profit. Arguably, the transition to A-IFRS goodwill accounting and reporting also results in substantially increased complexity - both in terms of the techniques required of reporting entities in accounting for goodwill, and in the nature of disclosures required in relation to goodwill and its impairment. This suggests the possibility of inconsistent compliance and varying levels of disclosure quality by firms making their first reports under the new regime. Consequently, this paper examines the level of compliance with a variety of the provisions of AASB 136 - Impairment of Assets and the quality of disclosure provided in accordance with that standard, by reviewing the 2006 accounts of a sample of 50 large Australian listed corporations. Material levels of non compliance were found and a material degree of variation in the quality and precision of disclosures pertaining to impairment testing procedures was also evident. Policy recommendations and potential directions for future research are identified and discussed.

Keywords: Goodwill, Financial Reporting, Creative Accounting, Impairment Accounting

JEL Classification: M41, G31

Suggested Citation

Carlin, Tyrone M. and Finch, Nigel and Ford, Guy, Goodwill Impairment - An Assessment of Disclosure Quality and Compliance Levels By Large Listed Australian Firms (January 2007). Available at SSRN: https://ssrn.com/abstract=963078 or http://dx.doi.org/10.2139/ssrn.963078

Tyrone M. Carlin

The University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia
+ 61 2 9036 7230 (Phone)
+61 2 9351 7471 (Fax)

HOME PAGE: http://sydney.edu.au/business/staff/tyronec

Nigel Finch (Contact Author)

Saki Partners ( email )

Australia

Guy Ford

Macquarie University - Graduate School of Management ( email )

99 Talavera Road
Sydney, NSW 2113
Australia
+61-2-9850-7813 (Phone)
+61-2-9850-9019 (Fax)

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