Insights on CFOs’ Perceptions about Impairment Testing Under IAS 36

Abstract

We survey CFOs of Italian listed companies and examine their views on the complexities involved in implementing IAS 36 requirements and the perceived usefulness of national guidelines aiming at assisting preparers in this respect. We find that IAS 36 is perceived as an atypical standard among IFRS, it demands subjective interpretation, its requirements can be made adaptable to managerial needs and do not limit creative accounting. Further, respondents do not see a strong link between IAS 36 disclosure requirements and market variables, except for stock returns. Moreover, the impairment testing process became more difficult during the recent financial crisis and guidelines issued by the Italian authorities do not appear to assist in implementing the recoverable amount estimation process or compliance with mandatory disclosure. The respondents explicitly call for a revision in IAS 36 and/or issuance of separate guidance. These findings inter alia respond directly to the IASB's current quest on financial statements preparers' concerns about the application of the IAS 36 requirements.

The effect of corruption and culture on mandatory disclosure compliance levels: Goodwill reporting in Europe

“…Third, the importance of our findings is enhanced by the fact that they specifically address goodwill related disclosures. Goodwill is of significant economic importance (EFRAG, 2016) and is a complex accounting area, for instance, due to the use of managerial assumptions around its impairment testing (ESMA, 2015;Giner and Pardo, 2015;Mazzi et al, 2016;Petersen and Plenborg, 2010). Further, its continued presence on IASB agendas (EFRAG, 2016) is indicative of regulatory concern.…”

“…Secondly, Mazzi et al (2016) who survey CFOs of Italian listed firms and Petersen and Plenborg (2010) who survey Danish listed companies report complimentary evidence that preparers view IAS 36 as a complex standard. For instance, it demands specific knowledge of valuation techniques that inevitably involve substantial judgement and is atypical amongst IFRS's.…”

“…Goodwill is specifically examined as both the academic and practice-based literatures highlight its economic importance (EFRAG, 2016;, complexity and the use of managerial assumptions around its impairment testing (ESMA, 2015;Giner and Pardo, 2015;Mazzi et al, 2016;Petersen and Plenborg, 2010) and its continued presence on IASB agendas (EFRAG, 2016). Within Europe, the topic has attracted considerable attention from ESMA (2013;.…”

Contemporary Issues Surrounding an Impairment-Only Approach to Acquired Goodwill: A Selected Review

“…First, research results have highlighted the shortcoming in the application of an impairment model. Few studies have attempted to address this shortcoming by seeking to understand how firms implement impairment test through survey questionnaires (e.g., Petersen and Plenborg, 2010;Mazzi et al, 2016). To provide greater insight into this shortcoming in order to offer relevant and practical solutions, it is recommended for future works to focus on conducting interviews with key personnel in-charged with the impairment test.…”

Practitioner views of goodwill accounting under US GAAP

“…Frey and Oehler (2014) survey German Certified Public Accountants (CPAs) and show that CPAs view that current standards leave room for accounting policy to influence the reported value of intangibles, including goodwill. Moreover, a survey of Italian chief financial officers (CFOs) by Mazzi et al (2016) indicates that CFOs regard goodwill accounting standards adaptable to management's needs and unable to limit creative accounting. Cheng et al (2018) also probe practitioners' views of goodwill accounting under US GAAP.…”