Goodwill impairment testing under IFRS: a false impossible shore?

Tyrone M. Carlin and Nigel Finch

Pacific Accounting Review, 2011, vol. 23, issue 3, 368-392

Abstract: Purpose - The purpose of this paper is to catalogue the practice of goodwill impairment testing in Australia and to provide evidence of the extent of compliance with respect to the disclosure requirements of international financial reporting standards (IFRS). Design/methodology/approach - The research question is addressed using an empirical archival approach with an emphasis on note‐form disclosures in the audited financial accounts of 200 goodwill‐intensive firms listed on the Australian Securities Exchange at 2006. The disclosures regarding impairment testing methodologies along with key input variables for the estimation of recoverable amounts are catalogued and an assessment is made of the extent to which such disclosures confirm with the requirement of AASB136. Findings - The results provide evidence of systematic non‐compliance with the disclosure requirements of the IFRS goodwill impairment testing regime on the part of large listed Australian firms. Insight is gained into the level of difficulty experienced by large, sophisticated and well‐resourced organisations in confronting the challenges associated with changing their financial reporting practices at the time of mandatory adoption of IFRS in Australia. Originality/value - While previous goodwill impairment testing studies have examined discount rate selection by reporting entities as one input variable solely under the value in use method, this paper provides empirical insights into all aspects of goodwill impairment testing for value in use, fair value and mixed method firms, cataloguing growth rate and forecast period disclosures. The paper provides a baseline study of compliance quality at the inception of IFRS in Australia.

Keywords: Australia; Disclosure; Financial reporting; International standards; Goodwill; Impairment; Creative accounting (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:eme:parpps:01140581111185544

DOI: 10.1108/01140581111185544

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