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Insight into the variables used to manage the goodwill impairment test under IAS 36

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  • Avallone, Francesco
  • Quagli, Alberto

Abstract

Many studies have dealt with the analysis of the impairment test of goodwill under the IAS 36 as an opportunistic choice, but there have been very few investigations into how managers actually use their discretionary power and what variables are used to manage the final results. Using a sample of highly capitalized European listed companies (from Germany, Italy, and UK) with book goodwill over the period 2007–2011, we try to identify the variables used by managers through the impairment test to avoid or reduce goodwill write-offs. Observing the differences between both the long-term growth rate and the actualization rate used by the managers in the test, and the same rates estimated from publicly available external sources, we found that the growth rate manipulation is a significant explanatory variable in avoiding or reducing the amount of the impairment write-off. The paper contributes to the theoretical debate on goodwill impairment as an earnings management choice, identifying some new variables used by managers to influence the results of the test. Additionally, the results have implications that are relevant for the standard-setters and regulators in terms of improvements on disclosure in notes.

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  • Avallone, Francesco & Quagli, Alberto, 2015. "Insight into the variables used to manage the goodwill impairment test under IAS 36," Advances in accounting, Elsevier, vol. 31(1), pages 107-114.
    • Handle: RePEc:eee:advacc:v:31:y:2015:i:1:p:107-114
    DOI: 10.1016/j.adiac.2015.03.011
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    2. Jani Saastamoinen & Hannu Ojala & Kati Pajunen & Pontus Troberg, 2018. "Analyst Characteristics and the Level of Critical Perception of Goodwill Accounting," Australian Accounting Review, CPA Australia, vol. 28(4), pages 538-555, December.
    3. Hedi Baazaoui, 2020. "For A New Method Of Calculating The Disclosure Index," Copernican Journal of Finance & Accounting, Uniwersytet Mikolaja Kopernika, vol. 9(2), pages 9-24.
    4. repec:mth:ijafr8:v:8:y:2018:i:3:p:278-294 is not listed on IDEAS
    5. Durocher, Sylvain & Georgiou, Omiros, 2022. "Framing accounting for goodwill: Intractable controversies between users and standard setters," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 89(C).
    6. Atanasov, Atanas, 2019. "Репутацията Като Обект На Счетоводството: Признаване, Оценяване, Оповестяване [Goodwill as an accounting object: initial recognition, measurement, disclosure]," MPRA Paper 97938, University Library of Munich, Germany.
    7. Roncagliolo, Elisa & Avallone, Francesco, 2022. "Recognition of provisional goodwill: Real need or communication strategy?," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 49(C).
    8. Atanasov, Atanas, 2017. "Управленски Аспекти На Счетоводната Обезценка На Търговската Репутация [Management Aspects of the Impairment of Goodwill]," MPRA Paper 85675, University Library of Munich, Germany.
    9. Nicola Giuseppe Castellano & Katia Corsi & Roberto Del Gobbo, 2015. "Goodwill Disclosure in Europe. Profiles of disclosing companies," Eastern European Business and Economics Journal, Eastern European Business and Economics Studies Centre, vol. 1(2), pages 32-65.
    10. Karampinis, Nikolaos I., 2021. "A cross-national analysis on the impact of enforcement on impairments of tangible assets under IFRS," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 42(C).
    11. Nabil Bashir Al-Halabi, 2017. "The Impact of Applying the Accounting Disclosure in Accordance with the IFRS on Increasing Profitability in Listed Banks: An Analytical Study," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(11), pages 73-81, November.
    12. d'Arcy, Anne & Tarca, Ann, 2018. "Reviewing IFRS Goodwill Accounting Research: Implementation Effects and Cross-Country Differences," The International Journal of Accounting, Elsevier, vol. 53(3), pages 203-226.
    13. repec:eeb:15v1n2:v:1:y:2015:i:2:p:32-65 is not listed on IDEAS

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