Editorial


The local garden centre has replaced its summer offering of deckchairs and barbecues for a dazzling array of seasonal trees, baubles and fairy lights. With this thought in mind, it is not perhaps entirely inappropriate that this month’s WAR has a focus on goodwill. The problem of how to account for goodwill acquired on a business combination has been troubling standard-setters for over 50 years now, yet it is far from clear that they are any nearer to finding a solution. Most people seem to agree that recognition of purchased goodwill reflects the underlying economics of a business acquisition, though even then there are those that demur. During a recent joint meeting between the IASB and the FASB, one Board member commented that she would hesitate to call goodwill an asset at all. A specific issue with recognition of purchased goodwill is the lack of consistency with the treatment of internally-generated goodwill which is never recognised. Comparisons between groups that grow by acquisitions and those that grow themselves can be difficult, which is a good reason to ignore the purchased goodwill as many analysts do. However, reverting to the “day two” issue of what to do with acquired goodwill once it has been recognised, the debate tends to focus on an impairment testing only approach versus amortisation supplemented by impairment testing, if required. The latter is fraught with the difficulties of how to avoid the write-off period being arbitrary and unrelated to the goodwill’s contribution to the business. In theory, impairment charges can show the loss in value of goodwill as it ceases to enhance post-acquisition profits but, in practice, the write-offs appear to be happening too late to reflect the declining economic impact, perhaps attributable to a flawed testing methodology – internally-generated goodwill causing accounting problems again! The present position is that the IASB narrowly favours retaining an impairment only approach, while the FASB could be moving towards reintroduction of amortisation.