Amortisation of Goodwill

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Leo
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Amortisation of Goodwill

Post by Leo »

Hi everyone,

It seems to me that some people are agree to allow amortisation on the goodwill, for which only depreciation based on impairment testing is allowed under IFRS.

What's the arguments (advantage) of amortising a goodwill over impairment? Isn't it more economic for the goodwill to be impaired?

Thank you guys.
JRSB
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Re: Amortisation of Goodwill

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Leo
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Re: Amortisation of Goodwill

Post by Leo »

I did't know that this even exists. it's fabulous.

Thank you, thank you Marek too and IFRSCommunity of course!
Last edited by Leo on 17 Nov 2020, 16:28, edited 1 time in total.
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exIFRS
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Re: Amortisation of Goodwill

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The International Accounting Standards Board has been looking closely at this issue. You can see a full discussion here: https://cdn.ifrs.org/-/media/project/go ... h-2020.pdf

But to summarise the arguments for amortisation:
Amortisation could be a simple way for a company to reduce the carrying amount of goodwill and take some pressure off the impairment test. It could help resolve the concerns of stakeholders who believe the carrying amount of goodwill can be overstated because of the inherent limitations of any impairment test.
In considering whether to reintroduce amortisation of goodwill, different

In the view of some Board members, the Board should reintroduce amortisation because:
(a) it has not proved feasible to design an impairment test that is significantly more effective at recognising impairment losses on goodwill on a timely basis. In their view, the Board should reintroduce amortisation to respond to the PIR of IFRS 3 feedback that the impairment test is not robust enough to recognise impairment losses on goodwill on a timely basis.
(b) carrying amounts of goodwill around the world have been increasing. Some Board members see this as evidence that without amortisation management is not being properly held to account for its acquisition decisions and that amortisation is needed to maintain the integrity and reputation of financial reporting.
(c) goodwill is a wasting asset with a finite useful life, and reintroducing amortisation is the only way to depict that goodwill is being consumed.
I have heard growing support for a hybrid approach. Impairment model for first 5 years, followed by a period of amortisation.
One other possibility is a hybrid approach, using an impairment-only approach for the first few years and then amortising goodwill in later years. This may have the advantage discussed in paragraph 3.67, that an impairment test is performed when the information from it is most helpful. However, some of the concerns discussed in paragraph 4.26 would also apply to this approach, namely that the time period selected for the impairment-only approach may not be appropriate for all companies and that additional guidance may also be required.
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exIFRS
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Re: Amortisation of Goodwill

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I see JRSB beat me to it!
Leo
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Re: Amortisation of Goodwill

Post by Leo »

Are you guys checking the forum every minute because you replied in such a short time!
JRSB
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Re: Amortisation of Goodwill

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Yes, at least once a minute :shock: :shock: :shock: :shock:
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exIFRS
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Re: Amortisation of Goodwill

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I never leave.
Leo
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Re: Amortisation of Goodwill

Post by Leo »

Great answers !!!
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Marek Muc
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Re: Amortisation of Goodwill

Post by Marek Muc »

I guess exIFRS and JRSB are exaggerating a bit, they need time to check IFRS.org as well ;)
JRSB
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Re: Amortisation of Goodwill

Post by JRSB »

On the original question, for what it's worth I don't agree with the consultation letter submitted from IFRScommunity.com, but I think that debate was had on a thread at the time..
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Marek Muc
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Re: Amortisation of Goodwill

Post by Marek Muc »

yes, we did:
viewtopic.php?f=4&t=195

I guess we need to agree to differ :)
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Marek Muc
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Re: Amortisation of Goodwill

Post by Marek Muc »

Ps. they're still accepting comment letters on this matter ;)
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