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How Do Firms Implement Impairment Tests of Goodwill?




This study seeks first to examine how firms implement impairment tests as required by IAS 36, and second, to explore factors which may explain why some firms are not entirely in compliance with IAS 36. It is based on a survey which includes 58 completed questionnaires representing 73% of the firms on the Copenhagen Stock Exchange that recognize goodwill on the balance sheet. The findings imply a variety in the application of IAS 36. Based on our analysis, it is difficult to determine whether this simply indicates that firms adopt an approach suited to their organizational and economic structures, or if it reveals that firms are uncertain as how to apply the standard. Our analysis further indicates inconsistencies in the implementation of IAS 36. This includes both how firms define a CGU and how they estimate the recoverable amount. Further, multivariate analysis reveals that the inconsistencies detected here are less likely in firms that systematize the procedures for impairment testing and use persons with considerable valuation experience. The findings should be of interest to a number of parties including firms, financial advisers, auditors, standard setters and users of financial statements.

Suggested Citation

  • Christian Petersen & Thomas Plenborg, 2010. "How Do Firms Implement Impairment Tests of Goodwill?," Abacus, Accounting Foundation, University of Sydney, vol. 46(4), pages 419-446, December.
  • Handle: RePEc:bla:abacus:v:46:y:2010:i:4:p:419-446

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    1. repec:bla:joares:v:38:y:2000:i:2:p:375-386 is not listed on IDEAS
    2. Martin Bugeja & Natalie Gallery, 2006. "Is older goodwill value relevant?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 46(4), pages 519-535.
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    Cited by:

    1. André, Paul & Filip, Andrei & Paugam, Luc, 2013. "Impact of Mandatory IFRS Adoption on Conditional Conservatism in Europe," ESSEC Working Papers WP1311, ESSEC Research Center, ESSEC Business School.
    2. repec:hal:journl:hal-00862683 is not listed on IDEAS
    3. repec:spt:apfiba:v:8:y:2018:i:3:f:8_3_2 is not listed on IDEAS
    4. Luc Paugam & Olivier Ramond, 2015. "Effect of Impairment-Testing Disclosures on the Cost of Equity Capital," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 42(5-6), pages 583-618, June.
    5. Gérald Lobo & Luc Paugam & Lana Zhang & Jean-François Casta, 2013. "Effect Of Joint Auditor Pair On Conserv A Tism: Evidence From Impairment Tests," Post-Print hal-00993007, HAL.
    6. Paul André & Andrei Filip & Luc Paugam, 2015. "The Effect of Mandatory IFRS Adoption on Conditional Conservatism in Europe," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 42(3-4), pages 482-514, April.
    7. Begoña Giner & Francisca Pardo, 2015. "How Ethical are Managers’ Goodwill Impairment Decisions in Spanish-Listed Firms?," Journal of Business Ethics, Springer, vol. 132(1), pages 21-40, November.
    8. repec:exl:25engi:v:27:y:2016:i:4:p:417-429 is not listed on IDEAS


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