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


  • Wolfgang Schultze


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 One of the major changes is the abolishment of goodwill-amortization, which has been replaced by an annual impairment test at the level of a reporting unit.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

Suggested Citation

  • Wolfgang Schultze, 2005. "The Information Content of Goodwill-Impairments under FAS 142: Implications for External Analysis and Internal Control," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 57(3), pages 276-297, July.
  • Handle: RePEc:sbr:abstra:v:57:y:2005:i:3:p:276-297

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    Cited by:

    1. Tami Dinh Thi & Wolfgang Schultze, 2011. "Capitalizing research & development and ‘other information’: the incremental information content of accruals versus cash flows," Metrika: International Journal for Theoretical and Applied Statistics, Springer, vol. 22(3), pages 241-278, November.
    2. Andreas Haaker, 2007. "Wertorientierte Kontrolle und Abweichungsanalyse auf Basis des Goodwill-Impairment-Tests nach IFRS," Metrika: International Journal for Theoretical and Applied Statistics, Springer, vol. 18(1), pages 83-108, April.
    3. Wolfgang Schultze & Andreas Weiler, 2007. "Performancemessung und Wertgenerierung: Entlohnung auf Basis des Residualen Ökonomischen Gewinns," Metrika: International Journal for Theoretical and Applied Statistics, Springer, vol. 18(2), pages 133-159, August.
    4. Sandrine Boulerne & Jean-Michel Sahut, 2010. "Les normes IFRS ont-elles amélioré le contenu informationnel des immatériels ? Le cas des entreprises françaises cotées," Comptabilité - Contrôle - Audit, Association francophone de comptabilité, vol. 16(1), pages 7-32.
    5. 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.
    6. Jerman Mateja & Manzin Massimo, 2008. "Accounting Treatment of Goodwill in IFRS and US GAAP," Organizacija, De Gruyter Open, vol. 41(6), pages 218-225, November.
    7. Wolfgang Schultze & Andreas Weiler, 2010. "Goodwill accounting and performance measurement," Managerial Finance, Emerald Group Publishing, vol. 36(9), pages 768-784, August.

    More about this item


    Financial Statement Analysis; Goodwill; Impairment; Internal Control; Perform-ance Measurement.;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting


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