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The Information Content of Goodwill-Impairments under FAS 142: Implications for External Analysis and Internal Control

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  • Wolfgang Schultze

Abstract

With its standards FAS 141 and 142 the Financial Accounting Standard Board has revolution-ized the accounting for business combinations. One of the major changes is the abolishment of goodwill-amortization, which has been replaced by an annual impairment test at the level of a reporting unit. Among other things, this new regulation is intended to improve the infor-mation content of goodwill accounting. This paper investigates into the information content of such an impairment from the perspective of external or internal financial analysis. I examine how impairment losses resulting from FAS 142 should be interpreted and treated in the inter-nal and external performance analysis. My analysis shows that an impairment can be due to several reasons, not just to a deteriorating economic performance. In particular, the way the impairment test is conducted according to FAS 142 may even lead to a discrimination of eco-nomically viable investment projects.

Suggested Citation

  • Wolfgang Schultze, 2005. "The Information Content of Goodwill-Impairments under FAS 142: Implications for External Analysis and Internal Control," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 57(3), pages 276-297, July.
    • Handle: RePEc:sbr:abstra:v:57:y:2005:i:3:p:276-297
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    Citations

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    Cited by:

    1. Jean-Michel Sahut & Sandrine Boulerne, 2008. "Les normes IFRS ont-elles améliorées le contenu informationnel des immatériels ? : le cas des entreprises françaises cotées," Post-Print halshs-00525967, HAL.
    2. Jean‐Michel Sahut & Sandrine Boulerne & Frédéric Teulon, 2011. "Do IFRS provide better information about intangibles in Europe?," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 10(3), pages 267-290, August.
    3. Jerman Mateja & Manzin Massimo, 2008. "Accounting Treatment of Goodwill in IFRS and US GAAP," Organizacija, Sciendo, vol. 41(6), pages 218-225, November.
    4. Tami Dinh Thi & Wolfgang Schultze, 2011. "Capitalizing research & development and ‘other information’: the incremental information content of accruals versus cash flows," Metrika: International Journal for Theoretical and Applied Statistics, Springer, vol. 22(3), pages 241-278, November.
    5. Andreas Haaker, 2007. "Wertorientierte Kontrolle und Abweichungsanalyse auf Basis des Goodwill-Impairment-Tests nach IFRS," Metrika: International Journal for Theoretical and Applied Statistics, Springer, vol. 18(1), pages 83-108, April.
    6. Wolfgang Schultze & Andreas Weiler, 2007. "Performancemessung und Wertgenerierung: Entlohnung auf Basis des Residualen Ökonomischen Gewinns," Metrika: International Journal for Theoretical and Applied Statistics, Springer, vol. 18(2), pages 133-159, August.
    7. Wolfgang Schultze & Martin Meyer, 2005. "Die Kapitalflussrechnung in der Unternehmensbewertung: Bewertungskalkül und Gestaltungshinweise," Metrika: International Journal for Theoretical and Applied Statistics, Springer, vol. 16(3), pages 289-324, September.
    8. Jean-Michael Sahut & Sandrine Boulerne, 2010. "Have Ias (International Accounting Standards)/Ifrs Improved The Information Content Of Intangibles In France ?," Post-Print hal-02104906, HAL.
    9. Klaus Trützschler & Ulrich David & Joachim Strauch & Claude Tomaszewski, 2005. "Unternehmensbewertung und rechnungslegung von akquisitionen: Die vorschriften nach IFRS und HGB vs. betriebswirtschaftliche rationalität," Metrika: International Journal for Theoretical and Applied Statistics, Springer, vol. 16(4), pages 383-406, December.

    More about this item

    Keywords

    Financial Statement Analysis; Goodwill; Impairment; Internal Control; Perform-ance Measurement.;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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