IASB split on goodwill accounting

The goodwill and impairment project has been causing the IASB some difficulties. The key issue is the extent to which impairment testing of goodwill is effective, as it appears that write-downs are either reported too late or not at all. The main alternative to impairment testing would be the reintroduction of annual amortisation, which would at least ensure that goodwill balances would be written off over time. However, by a narrow majority, the Board has decided that it prefers to retain impairment testing than to bring back amortisation. The forthcoming Discussion Paper (DP) will state that position. Nevertheless, it is far from clear in which direction the Board will ultimately go. This is a contentious area since recent high-profile company collapses have highlighted that although the value of goodwill on a balance sheet might be considerable one day, it can disappear the next. This article sets out some of the background to the debate, and considers the conflicting views of the Board members. The following article looks at the FASB’s work in the area and what the members of the two Boards said to each other when they recently exchanged their ideas.