Survey on Accounting for Goodwill

This study aims to respond to the global controversy surrounding “whether impairment ought also to be performed in the regular amortization of(acquired) goodwill, or should only be treated with impairment without regular amortization” and to deepen our understanding of the views of users and preparers of financial statements. The study a questionnaire survey targeting companies that prepare financial statements and analysts that use financial statements. and thus comtributes to resolving the controversy. As pioneering efforts to investigate the awareness of preparers surrounding accounting for goodwill after an acquisition, prior investigations by the Japan Business Federation (JBF) and the Accounting Standards Board of Japan (ASBJ) targeted only a small number of companies. In addition, a survey was conducted by the ASBJ to investigate user awareness using direct interviews with a small number of analysts. Therefore, to deepen the understanding of preparer and user awareness, we conducted a survey that included additional questions and options not dealt with in the prior studies. Moreover, we expanded the survey targets to 1,379 companies of the JBF(264 effective responses: 19.1%), 1,339 listed companies not affiliated with the JBF (185 effective responses, 13.5%),and 673 analysts (130 effective responses: 19.3%). The results of this survey clarified several issues. First, with regards to whether “impairment only (non-amaortization)” or “regular amortization + impairment” is preferred, approximately 70% of preparers answered that “regular amortization + impairment” is more desirable. The same trend was confirmed even when the responses were split into “JBF members/non-members” and “manufacturing/non-manufacturing” subsamples. For usere, approximately 60% responded that “regular amortization + impairment” was preferable. Next, when asked about the reasons for their support for “impairment only(non-amortization)” or “regular amortization + impairment,” both preparers and users responded that “performing the appropriate impairment test eliminates the need for regular amortization” was the most powerful reason for the first option. For the second option, both preparers and users stated the most compelling reason was “to make it correspond to profit through an appropriate allocation period(investment recovery calculation).”However,users showed similar support for “consistency with accounting dor other depreciable assets.” In addition, this survey asks whether regulating the goodwill amortization period is appropriate, what a desirable amortization period would be, whether the “impairment only(non-amortized)/regular amortization + impairment” options are appropriate, other alternative methods of accounting for goodwill, the nature of goodwill as an asset, and the relationship between goodwill accounting and M&A decision making. Additionally, it asks users whether they add goodwill amortization expense back to revenue and if they deduct the value of goodwill from net assets analyzing securities.