In the
More recently in the US we have seen the imposition of significant goodwill impairments—the accounting charge imposed when goodwill's carrying value on financial statements exceeds its fair value. High-profile examples include
These cases have been used as political fuel to elevate goodwill to the top of the agenda of the
In a letter to the FASB this January,
AUDITORS' ROLE OFTEN UNDERANALYSED Recent business failures in the
But although failures tend to be extensively reported by the
Of course, audits do not necessarily prevent business failures. Business failures stem from a lack of cash resulting from liquidity issues that can manifest quickly. Also, audit failures are not necessarily indicative of underlying business issues.
IASB AND FASB UNDER PRESSURE But we highlight the issue of goodwill not to debate the merits of the accounting for goodwill, but rather to highlight the media's often flawed analysis of many of the accounting, auditing, and business issues.
Media attention on the issue of goodwill in the
Simultaneously, a significant writeoff of goodwill by
FINDING THE BEST WAY FORWARD But delayed write-downs by poor management at several high-profile companies, or in connection with high-profile corporate failures, should not be seen as widespread evidence of the need to replace impairment with amortisation of goodwill.
Amortisation of goodwill, and certainly amortisation without impairment, would not have cured either overpayment for acquisitions or company failures.
For that reason, we do not believe these examples should be used as the basis by some stakeholders to further reduce the economic relevance and meaningfulness of financial statements.
We believe the IASB and FASB must be resolute in ensuring that financial statements provide economically relevant information.
Delayed recognition of impairment is the problem that needs to be addressed. We do not believe that amortisation is the best response to this problem.
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