Quality of Disclosed Information with Emphasis on Goodwill Impairment

Abstract

Abstract:This paper focuses on an analysis of the mandatory disclosure of goodwill impairment information in compliance with the international accounting standard IAS 36. The international financial reporting standards require a wide range of disclosed information concerning the goodwill impairment such as the carrying amount of goodwill allocated to the cash generating unit, determination of the discount rate applied to areas such as cash flow projections or sensitivity analysis. Prior research on disclosure requirements of goodwill impairment has shown generally low level of compliance within the selected companies. The main goal of this paper is to find out whether companies with higher goodwill intensity disclose the information required by IFRS on the impairment of goodwill. An empirical approach consisted of analysing consolidated financial statements of selected companies listed on DAX 30 1 and FTSE 100 2 . Our sample covered 89 companies and focused on their statements from 2010 to 2013. The results showed generally low compliance that subsequently affected the comparability of statements. The following requirements were identified as critical -determination of growth rate, disclosure of growth rate used to extrapolate cash flow projections, determination of discount rate, discount rates applied to cash flow projections and disclosure of the sensitivity analysis. These findings can be further utilized by regulators in order to increase the quality of disclosures in financial statements.

The Quality of Disclosure under IAS 38 in Financial Statements of Entities Listed on PSE

“…In the second part, the theoretical basis of the issue was explained along with some key references to the published articles. To date, only the paper by Boučková (2016) was published on a similar topic -Goodwill. Other papers were focused on IFRS mandatory disclosures, apart from the disclosure under IAS 38.…”

“…Specifically this type of information forms the basis for a future decisionmaking of the potential investors considering their investment in the particular company's stock. (Boučková, 2016) Aggregating financial information for all the joint ventures or associates would not result in a useful information under IAS 31 and IAS 28, when the entity holds a different percentage of ownership interests in its joint ventures or associates. Users of financial statements requested a more detailed disclosure of joint ventures.…”

Compliance with Disclosure Requirements under IFRS 3 of Companies Trading at Prague Stock Exchange

“…The reports of analysed companies significantly varied in the level of revenues' structural analysis and details of revenues recognition methodology provided. Boučková (2016) and the more recent study by Novák (2018) both found that the required level of goodwill disclosure is not met by Czech publicly listed companies.…”

Business Combinations of Czech Companies: Empirical Analysis of Their Typology

“…With our research we contribute to the available literature on company transformation in the Czech Republic, which is focused more on goodwill recognition and impairment (Boučková, 2016;Valouch and Králová, 2012), disclosure requirements (Gluzová, 2016;Nováková and Polák, 2015;Pospíšil, 2017) and other traits of M&A in the Czech Republic (Čibera, 2016;Zelenka, 2011;Vomáčková, 2006b). …”