This study investigates whether goodwill impairments are perceived as timely and whether specific auditor characteristics affect the perceived timeliness. It therefore contributes to central questions in accounting research: is managerial discretion over accounting numbers (accounting choice) good or bad for stakeholders and does audit quality have an impact on this relationship? It is motivated by the IASB's post‐implementation review on business combinations and the Goodwill and Impairment project based on it, the ongoing debate on the decision usefulness of impairment testing, and the question whether auditors have an impact on firms’ reporting of impairment losses. Based on a sample of German listed firms for the period 2006 to 2013, the results indicate that goodwill impairments are not recognized in a timely manner and delayed by at least one to two years. Moreover, the findings suggest that the recognition of impairment losses is influenced by auditor characteristics. In particular, firms seem to report goodwill impairments in a more timely fashion when they are audited by a Big 4 auditor, whereas the timeliness seems to decrease with a higher non‐audit fee ratio and a longer auditor tenure. Moreover, additional analyses indicate that higher audit fees lead to more timely impairments.

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This study investigates whether goodwill impairments are influenced by earnings management incentives. It is motivated by the International Accounting Standards Board’s (IASB) post-implementation review on business combinations, the ongoing debate on the reliability of impairment testing, and the high practical relevance of this topic. The sample consists of 2,127 firm-year observations from German listed firms for the periods 2006 to 2013. The results show that the likelihood to recognize goodwill impairments and the magnitude of impairment losses are not only determined by economic and other relevant factors but also influenced by earnings management incentives like beating an earnings target, conservative smoothing, big bath accounting, changes in senior management, and the firms’ general earnings management behavior. Hence, goodwill impairment tests seem to be used by management as a device for earnings management. The results do not change over time, i.e., between the period before, during, and after the financial crisis.