A series of stakeholder interviews conducted by KPMG in major capital markets highlights that the current International Financial Reporting Standards (IFRS) model of mandatory annual impairment testing of goodwill is due for a rethink.
Timed to coincide with the International Accounting Standards Board (IASB) outreach as part of its post-implementation review of the accounting for business combinations, the KPMG report — entitled ‘Who cares about goodwill impairment?’ — features interviews with an international sample of nearly 30 senior stakeholders from business, investors, regulators and academics to find out what they think about goodwill impairment testing: its relevance, its effectiveness, the difficulties and the disclosures.
Although interviewees identified that goodwill impairment testing is relevant in assessing how well an investment has performed, they noted that its relevance to the market is in confirming rather than predicting value. Interviewees also highlighted that the degree of subjectivity involved in assessing goodwill limits its effectiveness, and the high number of judgments and assumptions make it a complex and time-consuming exercise.
Mark Vaessen, KPMG’s global IFRS leader, said: ‘Our interviewees showed considerable support for a return to the amortisation of goodwill, where the value of the asset is reduced to reflect their reduced worth over time. Combined with the feedback on the subjectivity and complexity of goodwill impairment testing, it begs the question of whether it’s time to simplify the accounting for goodwill. I think that our report will provide valuable input to the IASB as part of its review of business combinations accounting.’