The Accounting for Goodwill: amortization versus impairment only approach – a debate in academic research

Abstract

The paper addresses one of the most controversial issues in accounting: goodwill accounting. The ongoing debate in academia, the regulatory environment, and accounting practice has been present for at least three decades. Currently, the FASB and IASB are debating whether to reintroduce the amortization approach as an alternative or replacement for the impairment-only approach. The purpose of the study is to contribute to this debate by providing empirical evidence based on the literature review. Our study primarily analyzes the most recent empirical findings and offers a multifaceted perspective. We identified the most sensitive areas of goodwill accounting under IFRS, US GAAP, and Chinese regulations. We then selected nine empirical papers published in high-quality journals and analyzed their findings. There are at least four significant implications for goodwill accounting: (1) value-relevance of reported goodwill information, (2) goodwill accounting openness for managerial discretion, (3) CEOs personal traits and related to that ability to signal true performance through goodwill accounting, and (4) lack of usefulness of goodwill information for the analysts. Literature review analysis implies the superiority of the impairment-only approach; however, many studies recommend amendments to the existing regulations.

Keywords

• goodwill
• financial reporting
• Debate in Accounting Research
• creative accounting