Study of goodwill impairment disclosures under IFRS

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24 Oct 2008

The United Kingdom Financial Reporting Council (FRC), under which the Accounting Standards Board operates, has published a Review of Goodwill Impairment Disclosures made by a sample of 32 UK listed companies using IFRSs.

The companies were chosen because they have large amounts of goodwill. IAS 36 requires an annual impairment assessment and disclosure of the key assumptions and the approach adopted to make those assumptions when using valuation models to check that goodwill does not need to be written down. You can Download the Report from the FRC Website (PDF 134k). Here are a few highlights:

All companies in the sample gave disclosures about their approach to impairment testing of goodwill. However, the level of supporting detail varied greatly:

  • For many companies, the disclosures were more generic than specific in nature. Only a minority of companies provided information that was directly relevant to their business. The report describes over half of the company reports as 'boiler plate – rather uninformative'.
  • Narrative information about the way in which key assumptions are identified and quantified tended to be vague. In many cases there was a generalised statement to the effect that past experience was modified based on management's expectations for the future.
  • Only a minority of the companies surveyed provided information by cash generating unit ('CGU'), even where significant amounts of goodwill were allocated to more than one CGU.

 

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