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

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Author Info
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 One of the major changes is the abolishment of goodwill-amortization, which has been replaced by an annual impairment test at the level of a reporting unit.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.

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Publisher Info
Article provided by LMU Munich School of Management in its journal Schmalenbach Business Review.

Volume (Year): 57 (2005)
Issue (Month): 3 (July)
Pages: 276 – 297
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Handle: RePEc:sbr:abstra:v:57:y:2005:i:3:p:276-297

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Related research
Keywords: Financial Statement Analysis; Goodwill; Impairment; Internal Control; Perform-ance Measurement.;

Find related papers by JEL classification:
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
M41 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Accounting

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This page was last updated on 2009-12-6.


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