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Minimizing goodwill impairment differences globally: No fast or simple solution

Published on: 27 Nov 2013

Executive summary

A crucial exercise for acquisitive businesses is to routinely assess the goodwill booked in an acquisition to determine whether there has been any impairment and, if so, how much. Why? Because inaccurate goodwill accounting can:

  • Distort financial reporting, potentially leading investors and analysts to lose confidence in the company
  • Cause a company’s stock price to plummet
  • Expose the company and its executives to potential legal, regulatory, and reputational risks.

As discussed in the first article in this series, The goodwill impairment dilemma: What happens when U.S. GAAP and IFRSs clash?, particular challenges can arise in goodwill impairment valuation and accounting when a company acquires a business located in another country. Differing goodwill accounting standards, such as those under U.S. Generally Accepted Accounting Principles (U.S. GAAP) and International Financial Reporting Standards (IFRSs), can create some disparities between write-offs taken in one country versus another country, but if those standards are applied rigorously, the differences should be minimal. However, it is apparent that in recent years there have often been notable differences in goodwill impairment conclusions across the world.

So what is the root cause or causes of these differences? Is it varying valuation practice due to the lack of consistent global standards or the different stages of development of the valuation profession globally? Is it cultural or language differences? Is it inconsistent application of the accounting and auditing standards? Or maybe it is all of the above, as well as other factors that are unclear at this stage.

This paper explores some of these issues for insights. What is clear is that regulators around the world, along with accounting and valuation industry leaders, are taking steps to bring more clarity and consistency to goodwill impairment valuation and accounting. As the global landscape evolves, company executives can benefit from understanding some important factors that may have led to differences in the assessment of goodwill impairment across countries. It will also help to understand activities that are under way in various areas of the world to improve the reliability of goodwill accounting information and also to bring greater consistency to the activities  underpinning goodwill conclusions and disclosures.

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