Issue to be investigated: Goodwill Impairment
You have recently been appointed as a graduate accountant in a company listed on the ASX200, and are currently reporting to the Chief Financial Officer (CFO). (Note: you will be assigned your specific company by the end of Week 2). ASX CODE: CVO COMPANY: COVER-MORE GROUP LIMITED
The International Accounting Standards Board (IASB), is undertaking a post-implementation review of business combinations accounting, and in 2014 issued a ‘request for information’, whereby one key aspect they wished to explore was the impairment-only approach to amortising goodwill, which was introduced ten years previously.
Goodwill is a significant asset on the balance sheet of your company, and the CFO has asked you to research the issues surrounding goodwill impairment, with a view to providing a submission to the IASB’s review program in order to potentially influence the future direction of the legislative agenda.
According to KPMG (2014), the IASB’s Request for Information essentially asks three questions in relation to goodwill impairment testing:
- How useful have you found the information obtained from annually assessing goodwill for impairment?
- Do you think that improvements are needed regarding the information provided by the impairment test?
- What are the main implementation, auditing or enforcement challenges in testing goodwill for impairment?
With this in mind, you are to research the issue, and implications for your company and present your findings in two documents:
- A business report to update the CFO and the Board of Directors fully on the accounting requirements for goodwill impairment, and its effect on your company reports in the current economic setting; including suggested answers on the above questions that you believe your company should present to the IASB; and
- Prepare a two-page media release outlining the company’s proposed response to the IASB, and recommendations to change to goodwill impairment legislation, if any.
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