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Investors want global approach to goodwill accounting

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07 Dec 2021

The CFA Institute, a global association of investment professionals, has published the results of a survey of CFA Institute members that demonstrate an almost unanimous preference from investors for a unified global approach, with a majority favoring improving disclosures over reverting to amortisation.

The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) are currently reexamining goodwill accounting, and, specifically, the measurement of goodwill post-acquisition. The IASB is pursuing improved disclosures while the FASB is considering reverting to amortisation.

The CFA Institute surveyed its members on their desired path forward. A majority of respondents (58%) supported retaining impairment as impairment is regarded as decision-useful and provides information content. Nevertheless, they also see room for improvement. Only 31% of the respondents supported the introduction of amortisation, which is viewed as the inferior model because it does not allow the discernment between good and bad acquisitions, distorts financial metrics and does not provide decision-useful information for investment analysis. Nevertheless, these respondents note that goodwill erodes over time, that impairment is subjective, and that amortisation is more predictable.

On convergence, the survey report notes:

Respondents were in raging agreement that the IASB and FASB should follow the same approach in the accounting for goodwill (90%) and in the subsequent measurement of goodwill (94%).

Investors also highlighted that the current accounting model needs to be updated to reflect the increasing importance of intangibles, that the move from a manufacturing to a service economy makes this more important and evident, and that a resolution is needed between the accounting for acquired versus internally generated intangibles.

Please click for the full report with detailed findings on the website of the CFA Institute.

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