۱- Introduction

۲- Background and method

۳- Value relevance of goodwill, impairment, and disclosure

۴- Determinants associated with goodwill recognition, impairment, and disclosure

۵- Conclusions

References

Abstract

We review 42 studies from 2008 to early 2017 about IFRS goodwill accounting choices for recognition, impairment, and disclosure of goodwill, focusing on cross-country evidence of implementation effects. We develop a model of application of goodwill accounting based on IFRS 3, IAS 36, and country- and firm-level influences to analyze the research and to summarize existing evidence about goodwill accounting choices. We report evidence in support of IFRS accounting for goodwill recognition, impairment, and disclosure from many countries. However, evidence regarding value relevance is mixed. Overall, there is a lack of cross-country evidence regarding factors affecting goodwill accounting. Many studies show goodwill recognition, impairment, and disclosure are associated with economic and firm factors, and there is some evidence about the impact of managerial incentives and a lack of timeliness in impairment recognition. There is scope for more cross-country studies showing how institutional factors affect the application of IFRS 3 and IAS 36.

Introduction

The aim of our paper is to provide a synthesis of existing literature to identify where research provides strong evidence on the topic of accounting for goodwill after implementation of International Financial Reporting Standards (IFRS) in various countries. We develop and use a framework of accounting choice to analyze recent research on the effects of application of IFRS 3 Business Combinations and IAS 36 Impairment to find evidence as well as research opportunities for the following questions: Are goodwill accounting choices value relevant? This is a necessary condition for the next set of questions: What determinants influence goodwill accounting choices? What are the consequences of different goodwill accounting choices? To what extent are those determinants and consequences explained by country differences? We propose that strong evidence is provided when studies which are based on appropriate samples and methods provide consistent results across countries and over time. The focus of our paper is, initially, crosscountry studies because we seek evidence about the application of IFRS in a range of countries. To supplement this analysis (and because there are few cross-country studies) we also consider evidence from single-country studies. Accounting for goodwill is important and controversial. Recognized goodwill often represents the single largest item on a firm’s balance sheet (Boennen & Glaum, 2014). Accounting for business combinations has changed dramatically with the release by the US Financial Accounting Standards Board (FASB) of Statement of Financial Accounting Standards (SFAS) 141 Business Combinations and SFAS 142 Goodwill and Other Intangible Assets in June 2001 (FASB, 2001a, 2001b).1 Similar requirements were introduced in IFRS 3, which applied beginning in January 2005 for European Union listed companies’ consolidated accounts and in other countries that subsequently adopted IFRS, including Australia, Canada, and Malaysia (IASB, 2015). Notable aspects of IFRS 3 were abolishing the pooling of interests method and goodwill amortization as well as adopting an impairment-onlyapproach for goodwill and some other intangible assets. IAS 36, adopted from 2005, applies to impairment recognition, measurement and disclosure.