Analysis Of Goodwill Impairments And Their Effects On Financial Statements

1374 Words Apr 15th, 2015 6 Pages
Analysis of Goodwill Impairments and
Their Effects on Financial Statements
The impairment-only accounting model for goodwill was initially brought to the table in 2004, to replace the previous amortization-based model. Over the years, research supported the idea that impairment charges improved the fundamental economic attributes of goodwill than systematic amortization charges. Research also revealed that such annual changes had minor information value to users. According to KPMG (2014), this was the key reason why the US Financial Accounting Standards Board (FASB) “replaced straight-line amortization of goodwill with this model that was based exclusively on impairment testing” (p. 4). The FASB argued that this approach provides financial statement users with a “clear understanding of the expectations about and changes in goodwill, thereby improving their ability to assess future profitability and cash flows” (FASB 2001, 6).
As with many generally accepted accounting principles (GAAP), the definition of impairment varies depending on the situation. Its regulations are somewhat complex, but the rudiments are relatively easy to understand and follow. Impairment charges is the term used for writing off worthless goodwill. These charges started becoming important in 2002, as companies started disclosing huge good will write offs in their financial statements including AOL and McDonald’s. Since then, impairment charges have flown under the radar. However, these charges become…

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