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Impairment of Goodwill and Deferred Taxes Under IFRS

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  • Dominic Detzen
  • Tobias Stork genannt Wersborg
  • Henning Zülch

Abstract

type="main"> This article discusses the effect of deferred tax liabilities (DTLs) on an impairment test of goodwill. While IAS 12.66 acknowledges that DTLs arising in a business combination influence the amount of goodwill an entity recognises, International Financial Reporting Standards are silent on the implications of this rule, in particular that DTLs trigger a ‘day one’ impairment of goodwill. To avoid this impairment charge, the professional literature suggests deducting DTLs from the carrying amount of the cash generating unit. This method appears contentious conceptually and is unable to shield the entity from an impairment in subsequent periods. The article discusses four proposed solutions to the problem, but recommends a conceptual re-think of the mechanical recognition of deferred taxes in a business combination.

Suggested Citation

  • Dominic Detzen & Tobias Stork genannt Wersborg & Henning Zülch, 2016. "Impairment of Goodwill and Deferred Taxes Under IFRS," Australian Accounting Review, CPA Australia, vol. 26(3), pages 301-311, September.
    • Handle: RePEc:bla:ausact:v:26:y:2016:i:3:p:301-311
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    References listed on IDEAS

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    1. Sven Husmann & Martin Schmidt, 2011. "‘The Discount Rate of IAS 36’ -- A Reply to Kvaal ( AiE , Vol. 7, pp. 87--95, 2010)," Accounting in Europe, Taylor & Francis Journals, vol. 8(1), pages 125-126, June.
    2. Ralf Ewert & Alfred Wagenhofer, 2012. "Using Academic Research for the Post-Implementation Review of Accounting Standards: A Note," Abacus, Accounting Foundation, University of Sydney, vol. 48(2), pages 278-291, June.
    3. Erlend Kvaal, 2007. "Discounting and the Treatment of Taxes in Impairment Reviews," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(5‐6), pages 767-791, June.
    4. Erlend Kvaal, 2010. "The Discount Rate of IAS 36 -- A Comment," Accounting in Europe, Taylor & Francis Journals, vol. 7(1), pages 87-95, June.
    5. Sven Husmann & Martin Schmidt, 2008. "The Discount Rate: A Note on IAS 36," Accounting in Europe, Taylor & Francis Journals, vol. 5(1), pages 49-62, June.
    6. Erlend Kvaal, 2007. "Discounting and the Treatment of Taxes in Impairment Reviews," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(5-6), pages 767-791.
    7. Tyrone M. Carlin & Nigel Finch, 2009. "Discount Rates in Disarray: Evidence on Flawed Goodwill Impairment Testing," Australian Accounting Review, CPA Australia, vol. 19(4), pages 326-336, December.
    8. Kaiying Ji, 2013. "Better Late than Never, the Timing of Goodwill Impairment Testing in Australia," Australian Accounting Review, CPA Australia, vol. 23(4), pages 369-379, December.
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