Quantitative study on goodwill and goodwill impairment
30 Sep 2016
In connection with the post-implementation review of IFRS 3, the European Financial Reporting Advisory Group (EFRAG) conducted a study to find out when goodwill impairment was recognised and whether there was a bubble of goodwill building up. EFRAG has now published the quantative data gathered during the research to facilitate the debate related to the accounting for goodwill by providing evidence on how goodwill and goodwill impairment have evolved over time.
The main findings in Europe were (there is also a comparison with data from the US, Australia, and Japan):
- From 2005 to 2014, the total amount of goodwill recognised increased from 935 billion euros to 1.341 billion euros, representing an increase of 43%;
- A small number of companies account for a large share of the carrying amount of goodwill;
- The ratio goodwill to total assets has remained fairly stable over the years at approximately 3,7%. The ratio is significantly higher when entities in Financials industry are excluded but has been gradually decreasing since 2009;
- The ratio goodwill to net assets has been decreasing since 2008, but it was still significant in 2014 (29%);
- The amount of impairment losses recognised was at the highest level in 2008 and 2011, years when the performance of the financial markets was negative. On average, impairment losses represented 2,7% of the opening balance of goodwill;
- Impairment losses are significantly concentrated in a small number of companies, particularly in the Telecommunications and Financials industries; and
- Absolute and relative levels of goodwill and impairment losses vary significantly across industries.