Discretion Of Goodwill Impairment Testing

961 Words Apr 4th, 2016 4 Pages
Managers Discretion in Goodwill Impairment Testing

Introduction The transition to International Financial Reporting Standards (IFRS) since 1 January 2005 has changed accounting treatment for goodwill in Australia. Prior 2005, goodwill and other intangible assets were amortized over a period not in excess of 20 years. However, International Accounting Standard Board (IASB) has been issuing a new concept in order to replace amortization of goodwill. Instead, companies should do an impairment testing based on International Accounting Standard (IAS) 36 which is adopted in Australian Accounting Standard Board (AASB) 136. According to AASB 136 an entity should ensure that assets are carried at no more than their recoverable amount, therefore at the end of each reporting period, an entity is required to assess whether there is any indication that an asset may be impaired. An impairment loss is recognised whenever recoverable amount is below carrying amount. The recoverable amount is defined as the higher value of fair value less costs to sell and value in use. Further, paragraph 25 and 30 AASB 136 describes some elements should be considered in the calculation of fair value and value in use, including an estimate of the future cash flows. The fundamental of IFRS which based upon principles rather than hard set rules has provided management to use their discretionary authority in applying application of the standards, including goodwill impairment testing (Dumont, 2015). Harris…
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