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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
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    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 One of the major changes is the abolishment of goodwill-amortization, which has been replaced by an annual impairment test at the level of a reporting unit.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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    Bibliographic 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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    Keywords: Financial Statement Analysis; Goodwill; Impairment; Internal Control; Perform-ance Measurement.;

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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. Wolfgang Schultze & Andreas Weiler, 2010. "Goodwill accounting and performance measurement," Managerial Finance, Emerald Group Publishing, vol. 36(9), pages 768-784, September.
    3. 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, vol. 10(3), pages 267-290, August.


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