The Information Content of Goodwill-Impairments under FAS 142: Implications for External Analysis and Internal Control
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 One of the major changes is the abolishment of goodwill-amortization, which has been replaced by an annual impairment test at the level of a reporting unit.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.
Volume (Year): 57 (2005)
Issue (Month): 3 (July)
Pages: 276 – 297
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