How to Report Goodwill?
Want to know more about the key issues surrounding goodwill impairment currently being weighed up by standard setters? Calcbench and Valuation Research Corporation (VRC) have recently collaborated on a video taking a deep dive into this important topic.
Goodwill is an accounting value recorded when a company acquires another company, measuring the value of intangible assets that go beyond what the measurable physical assets alone are worth – for example, goodwill could include brand recognition. It is by its nature a controversial measure as intangible assets are not easily quantifiable and projections of future cash flow tend to skew to the generous. If the new assets don’t end up generating the financial results that were expected, an accounting charge known as goodwill impairment is recorded.
The International Accounting Standards Board (IASB) abolished the amortisation of goodwill in 2004, relying on an impairment-only approach. Recently, IASB have been reviewing how companies present goodwill on their balance sheets, with a discussion paper expected around the end of 2019 that considers the possibility of re-introducing amortisation.
To ensure that financial data is as reliable and comparable as possible, it’s essential that there are strong frameworks for reporting intangible measures such as goodwill. This is one of the more complex problems that investors, and accounting professionals face, and the debate in this area is sure to continue for quite some time to come.