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Economic effects of goodwill accounting practices: systematic amortisation versus impairment test


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Title:
Economic effects of goodwill accounting practices: systematic amortisation versus impairment test
Authors:
Cavero Rubio, José Antonio  
Amorós Martínez, Araceli
Collazo Mazón, Antonio
Editor:
Taylor and Francis Group
Department:
Departamentos de la UMH::Estudios Económicos y Financieros
Issue Date:
2020-06
URI:
https://hdl.handle.net/11000/30875
Abstract:
Under IFRS, an impairment test is the only method applied to reduce goodwill. However, while the IASB have asked for comments about re-introducing the systematic amortisation method, European directives have already adopted its application. In this dual regulatory framework, we examine whether there are significant differences between the two methods that could affect the comparability of financial statements and their ability to faithfully represent the firm performance. Using a sample of 90 Spanish-listed firms over the period 2004–2011, the panel data technique and t-Student test confirm that under the impairment test, firms are likely to maintain higher amounts of goodwill and not recognise any impairment loss. Consequently, ROA and ROE are higher and leverage is lower. In addition, findings suggest that firms do not correctly implement this method to transmit private information about their economic situation. Results show that the better firm performance is the larger goodwill impairment will be.
Keywords/Subjects:
Goodwill amortisation
goodwill impairment
financial ratios
IFRS
business combinations
effects of accounting practices
Knowledge area:
CDU: Ciencias aplicadas: Cuestiones generales de las ciencias aplicadas
Type of document:
application/pdf
Access rights:
info:eu-repo/semantics/closedAccess
Attribution-NonCommercial-NoDerivatives 4.0 Internacional
DOI:
https://doi.org/10.1080/02102412.2020.1778376
Appears in Collections:
Artículos Estudios Económicos y Financieros



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