The IVSC have published ‘Opportunities for Enhancing the Goodwill Impairment Framework,’ the third and final paper in its series looking at the IASB proposal to revert to goodwill amortisation. Much of the feedback from the business valuation, and even the audit, profession has trended negative, and groups such as CFAI have submitted research suggesting the amortisation switch could damage the already-bruised world economy.
IVSC have sought to foster debate with their three-part series. In the first article, ‘Is Goodwill a Wasting Asset?’ the IVSC examined whether goodwill is economically a wasting asset, and, if so, whether the life and implicit decline in value can be reasonably estimated and supported. In paper two, ‘Information Value of the Current Impairment Test: Leading or Lagging Indicator?’ the IVSC explored the information content of the goodwill impairment test and highlighted reasons for its limitation as a leading indicator.
The third ‘Opportunities’ paper (written by Kevin Prall, business valuation technical director, in consultation with the IVSC Business Valuation Board) looks back over the core themes presented earlier in the series and looks in more detail at the opportunities for enhancing the goodwill impairment framework. One suggestion Prall examines is the use of ‘step up’ headroom to ‘account for the internally generated intangibles and other goodwill.’ IVSC remind business valuers that this approach is hardly new in the UK, having been identified in FRS 11 Impairment of Fixed Assets and Goodwill, issued in July 1998 by the UK Accounting Standards Board.