The Quality of Goodwill Disclosures and Impairment in the Financial Statements of Energy, Mining, and Fuel Sector Groups during the Pandemic Period—Evidence from Poland

Abstract

The COVID-19 pandemic has strongly affected the economic situation of many countries, which is worth considering not only globally but also in the context of specific industries. An asset that is particularly sensitive to negative economic changes is goodwill. The aim of this study is to assess the impact of the pandemic on the quality of financial disclosures concerning goodwill in consolidated financial statements of groups of chosen strategic sectors in Poland. We investigated the implications of the pandemic on the frequency and scale of goodwill impairment in relation to 23 companies listed on the Warsaw Stock Exchange from the Energy, Mining, and Fuel Index. We identified the research gap in this area. For the purposes of this study, two research hypotheses were formulated: (H1) during the COVID-19 pandemic, there has been a slight improvement in the quality of goodwill disclosures in the consolidated financial statements of groups in the energy, fuel, and mining sectors; (H2) The COVID-19 pandemic caused a decrease in goodwill due to impairment losses in the consolidated financial statements of groups in the energy, fuel, and mining sectors. The hypotheses were verified on the basis of the above research sample. In order to verify the first hypothesis, we tested 81 consolidated financial statements for the years 2018–2021 based on a self-developed index of the quality of disclosed information. To verify the second hypothesis, we analyzed the frequency and scale of the estimated loss of goodwill during the COVID-19 pandemic and its impact on the deterioration of the financial condition of the same research sample. The conducted research shows that the quality of disclosures regarding the goodwill in the examined sample has changed slightly. Contrary to our expectations, the pandemic did not materially reduce the value of goodwill. This means that the first hypothesis was verified positively, while the second hypothesis had to be rejected.

The role of internally generated goodwill in choosing areas and objects of investment

“…Slezáková (2020) observes legal issues of financial market regulations. Gierusz et al (2022) analyze the results of companies in themining and energy sector and prove that goodwill is the main indicator of a company's survivability during the long-term crises. The authors distinguish the following core components of goodwill: market share, management qualifications and a unique business model.…”

Untitled

“…In the IAS-adopter companies, the adjustment of the goodwill value over time takes place according to the impairment test method, while in the OIC-adopter companies this adjustment is implemented according to the amortization technique. Despite their comparability (Gierusz et al, 2022), the two methods are based on different assumptions. The impairment test requires the annual verification of the existence of impairment losses and the recognition of those ascertained as a reduction in the value of goodwill (Li, 2011).…”