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• W2598346370 abstract "EXECUTIVE SUMMARY low frequency of goodwill impairments is surprising considering the high rate of business combination failures. Do companies deliberately avoid recognizing impairments? Financial Accounting Standards Board (FASB) Accounting Standards Codification[R] (ASC) Topic 350, Intangibles--Goodwill and Other, requires public companies to perform an annual test for possible goodwill impairment. (1) International Accounting Standards Board (IASB) International Accounting Standard (IAS) 36, Impairment of Assets, provides for similar treatment. (2) Questions exist, however, as to the low frequency of goodwill impairments, particularly given the high rate of business combination failures. relatively high rate of failed business combinations seemingly would suggest that there should be a similarly high rate of goodwill impairments. One possible explanation for this discrepancy is that corporations manage the provisions of goodwill accounting to purposely avoid recognizing goodwill impairments. In the February 2011 issue of CPA Journal, Dennis Chambers and Catherine Fingers provided evidence that companies may indeed exploit some of the more subjective areas of the goodwill accounting standards as a means of managing their earnings, particularly when an impairment loss may result in a debt covenant violation or affect a chief executive officer's (CEO's) compensation or reputation. (3) Similar concerns were raised in a 2014 KPMG interview-based study that observed, The degree of subjectivity in goodwill impairment testing limits its effectiveness. (4) Clearly, goodwill impairment testing has come under increased scrutiny, driven by concerns that its complexity and subjectivity may allow corporations to significantly underreport the frequency of goodwill impairment. In 2012, Douglas M. Boyle, Brian W. Carpenter, and Daniel P. Mahoney discussed these concerns in an article titled Goodwill Accounting: A Closer Examination of the Matters of Nonimpairment, noting that goodwill impairments have historically occurred at a low rate of between 2% and 5% during stable economic times (2005-2007), increasing to between 7% and 16% during the financial crisis (2008-2010). (5) Since that time, the rate of impairments has been trending back down toward the rates noted during relatively more stable times. In addition, Boyle, et al., indicated that the rate of business combination failure (i.e., instances where the combination actually destroyed or provided no shareholder value) had been alarmingly high, ranging anywhere from 60% to 80%. They noted, Given that most business combinations either destroy shareholder value or are value-neutral, the incidence of goodwill impairment is surprisingly low--so low as to call into question both the adequacy of required testing procedures and the seriousness with which corporate managers take the goodwill impairment issue. (6) They also provided insights into this disconnect and identified related questions that those charged with corporate governance oversight should be asking of corporate management before, during, and after an acquisition. We used those questions as a basis for gaining valuable insight from public accounting professionals, i.e., those who regularly assess the goodwill issue as part of their formal audits of client financial statements. In so doing, this study yields practical implications for those serving in governance oversight roles such as boards, audit committees, senior management, and auditors. SURVEY RESULTS We examined the various aspects of goodwill valuation, which range from the assessment of risks and benefits deriving from business combinations to the appropriateness of the many assumptions used in projecting future earnings resulting from the combinations. We administered the survey to public accounting professionals. As shown in Table 1, the survey respondents represent a broad demographic spectrum. …" @default.
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• W2598346370 date "2016-06-22" @default.
• W2598346370 modified "2023-09-23" @default.
• W2598346370 title "Goodwill Impairment Adequacy: Perspectives of Accounting Professionals" @default.
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