R-Goodwill impairment

R-Goodwill impairment

Goodwill impairment

Goodwill non-impairment describes the absence of goodwill impairment losses in the accounting reports of a company. Despite the adoption of policies to govern goodwill amortization, a significant number of accounting experts have expressed their concerns on companies that are bypassing the set laws to manipulate their earnings. Accounting experts consider goodwill impaired if the value of an organisation’s goodwill assets decreases. A Company facing impaired goodwill may choose not to present any value or use accounting discretion to report a value lower than the accurate value. The FASB formulated standards that enforce accounting for acquired assets using the purchase method. An analysis of accounting reports, case studies and surveys demonstrate that companies exploit the loopholes in goodwill non-impairment reporting to alter actual earnings.
The SFAS142 recommends that a company should evaluate the value of a reporting unit and compare it with the book value to determine the source of goodwill impairment. Accounting experts consider a goodwill impairment to have arisen if the declared fair value is less than the book value of the goodwill. Accounting for the average impairment losses helps to minimize the manipulation of the reported net income because a unit’s fair value depends on the company’s liquidity flow and economic forces. One key strategy in manipulating the reported net income is the alteration of the loss estimates because an auditor cannot confirm the estimated values. Companies report inflated earnings in order to avoid posting losses or reduced earnings. The managers in some companies may influence the magnitude of goodwill impairment to avoid a negative effect on their reputation. Companies may delay goodwill impairment records, even with the issuance of the exposure draft, to post higher earnings.

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