403E.资产减值认定及会计问题研究 外文原文.doc

Goodwill Impairment An Assessment of Disclosure Quality and Compliance Levels by Large Listed Australian Firms Tyrone M. Carlin Nigel Finch & Guy Ford Macquarie Graduate School of Management The adoption of A-IFRS has resulted in the introduction of fundamental changes to the Australian accounting and reporting regime for goodwill. The impairment testing led approach to goodwill reporting required under A-IFRS results in a materially different approach to goodwill valuation for balance sheet purposes and to the nature and timing of the influence of goodwill as an asset class on the determination of periodic profit. Arguably, the transition to A-IFRS goodwill accounting and reporting also results in substantially increased complexity both in terms of the techniques required of reporting entities in accounting for goodwill, and in the nature of disclosures required in relation to goodwill and its impairment. This suggests the possibility of inconsistent compliance and varying levels of disclosure quality by firms making their first reports under the new regime. Consequently, this paper examines the level of compliance with a variety of the provisions of AASB 136 Impairment of Assets and the quality of disclosure provided in accordance with that standard, by reviewing the 2006 accounts of a sample of 50 large Australian listed corporations. Material levels of non compliance were found and a material degree of variation in the quality and precision of disclosures pertaining to impairment testing procedures was also evident. Policy recommendations and potential directions for future research are identified and discussed. Keywords: Goodwill, Financial Reporting, Creative Accounting, Impairment Accounting INTRODUCTION Speaking before an audience at Temple University in 1965, Leonard Spacek declared, emphatically, that goodwill existed as an asset for practically every business. He was equally emphatic however, that the small matter of measuring its value was deeply vexed and that many of the accounting practices relating to goodwill he observed in use at that time were “outmoded”, “rigid” and “indefensible”. His frustration with goodwill accounting practices was no doubt deeply rooted in his vast experience as a practitioner. However, scholars of accounting too have also long been concerned with the difficulties associated with conceptualising, measuring and reporting on this financial Will-othe-Wisp. As far back as 1929, Canning noted that the main achievement of the literature accumulated on the subject of goodwill to that point was to generate a striking variety and number of disagreements on the issue. Plus ca change. Indeed, the one apparent constant in the goodwill story is dissent, untempered by the passage of time, as to how best to deal with this black sheep of the balance sheet. In some cases this has manifested in the form of earnest (though mild) discussion as to whether goodwill, to the extent that it appeared on the balance sheet ought be labelled as a “fixed asset” or an “intangible asset” of the business (Fjeld, 1936; Walker, 1938). Some, apparently exasperated with the slipperiness of goodwill as a construct thought it ought to be expunged from the financial statements as soon as it had come into existence. Chambers supported this approach, objecting to goodwills right to a place on the balance sheet by reason of its lack of “severability” and (to his eyes) lack of capacity to contribute to what he termed the “adaptability of the firm” (Chambers, 1966, p.218). Miller would also have consigned goodwill to immediate writedown. Such treatment, he argued, was the least worst means of resolving the fate of an illegitimate creature born of a wholly inadequate framework for the aggregation of assets (Miller, 1973). Gynther, on the other hand, thought it absurd to engage in rituals of mandatory amortisation and writedown of goodwill taking the view that it could (and ought) as confidently assert its membership of the on balance sheet asset club as other less colourful actors. Optimistic about rapid advancements in measurement techniques, he saw no objection to the recognition (via a continuous revaluation regime) even of that much dreaded sub-species, internally generated goodwill (Gynther, 1969). Given the maelstrom evident in the conceptual sphere, it is perhaps unsurprising that considerable turbulence has long been clearly evident in the world of practice. Early editions of Montgomerys Auditing2 finger goodwill as a favoured tool of watered stock fraudsters and their fellow travellers, suggesting widespread licentiousness including the capitalisation of operating losses to goodwill on the spurious theory that these had been incurred for the future economic betterment of the enterprise in question. Add a (dirty) pool, write off against reserves, incant extraordinary expense, invert the sum of the years digits, misallocate purchase consideration to identifiable intangibles, about face and channel away from these back to goodwill, trim cash generating unit populations, massage growth assumptions, compress discount rates. Round and round the cauldron go (Gibson & Francis, 1975; Wines & Ferguson, 1993; Day & Hartnett, 2000; Micallef & Eddie, 2001; Lonergan, 2006). Yet in matters pertaining to the regulation of financial reporting, hope evidently springs eternal. Whatever had transpired historically, a clear break with the past was made when it became a requirement at law that International Financial Reporting Standards (IFRS) would in Australia be the required basis for the preparation of financial statements3 for all reporting periods beginning on or after January 1 2005. In many instances the transition to IFRS resulted in very little actual change. This was not so in the case of the new rules pertaining to goodwill accounting, which differed radically from their predecessors. Consequently, informed by the turbulent history of goodwill accounting practice and theory, it is the objective of this paper to take the opportunity afforded by the emergence of the first substantial sample of financial statements prepared by large listed Australian companies under IFRS to peer into this brave (and complex) new domain with a view to forming an impression of its qualities. In pursuing this objective, the remainder of this paper is structured as follows. Section 2 provides a brief review of key developments in the regulation of goodwill accounting and reporting in Australia to date. Section 3 sets out details of the data sample and research methodology employed. Section 4 consists of a discussion of the results of the study, while section 5 contains some conclusions and suggests some implications of this study for practice and potential further research. 2. OVERVIEW OF GOODWILL REPORTING ARRANGEMENTS IN AUSTRALIA Although goodwill had figured as an element of financial reports in Australia for an extended period (Standish, 1972), no reporting standard dealing with goodwill existed in the jurisdiction until the issue in March 19844 of Statement of Accounting Standards AAS 18, Accounting for Goodwill, by the Australian Society of Accountants5 jointly with the Institute of Chartered Accountants in Australia6. Prior to that time, an almost perfect regulatory vacuum surrounded financial reporting arrangements for goodwill in Australia, there being, in addition to a lack of accounting standards on the matter, no express requirements from other quarters such as stock exchange listing rules or the Companies Act. This set the Australian landscape at odds with the position in other jurisdictions, for example the United States, where pronouncements pertaining to goodwill had existed for several decades for example, chapter 5 of Accounting Research Bulletin (ARB) 43, issued in 1953, or APB 17, issued in 1970. Consequently, prior to the advent of regulation in Australia, a melange of conflicting practices existed (Gibson & Francis, 1975). Evidently, that is how a substantial proportion of the reporting population liked things. AAS 18, calling as it did for the recognition and subsequent orderly amortisation of purchased goodwill against periodic earnings, was received with considerable indifference if not hostility by a significant proportion of Australian reporting entities, whose rate of compliance with the requirements of the new interloper was poor (Carnegie & Gibson, 1987). They had that luxury. AAS 18 did not enjoy the force of law. It required the introduction of Approved Accounting Standard ASRB 1013 Accounting for Goodwill, a standard backed by the force of law, to prod recalcitrant reporting entities into compliance. This standard, which required recognition and subsequent systematic amortisation of goodwill against periodic earnings, became effective for all reporting periods ending from June 1988 onwards (Wines & Fergusson, 1993). Yet even with the promulgation of a standard on goodwill backed by law, the regulatory victory was rapidly hollowed by innovation in practice. A favoured technique for avoiding the earnings dilutive consequences of ASRB 1013 was to place aggressive valuations on identifiable intangible assets obtained in corporate acquisition transactions, thus diminishing the residual difference between purchase consideration and the fair value of net assets acquired via the transaction and consequently, the value ascribed to goodwill on acquisition (Walker, 1989; Woolf 1989). This form of regulatory arbitrage was possible because whereas a binding accounting standard existed in relation to goodwill, no standard governed reporting requirements for identifiable intangibles. Thus, while amortisation of goodwill against earnings was a requirement of ASRB 1013, no such express requirement existed in relation to identifiable intangibles. Value ascribed to these assets could therefore theoretically remain indefinitely untrammelled. Noting this practice, the Australian Accounting Research Foundation (AARF) issued Accounting Guidance Release No. 5, stipulating that all non current assets, tangible or intangible ought be written off against earnings on a systematic basis over the period during which benefits attributable to the items in question were expected to arise. Lacking legal force, the compliance response was underwhelming (Goodwin & Harris, 1991). Further, while the rules governing goodwill restricted the capacity of reporting entities to employ large one-off write downs (or big bath accounting), no such restrictions formally existed in the context of accounting for identifiable intangible assets. This gave rise to a process which came to be known as the “intangible mirage”, whereby having aggressively valued identifiable intangibles obtained in acquisition transactions, reporting entities thereafter wrote off large amounts of the resulting value as extraordinary items8, protecting future earnings streams from any revisionist, amortisation oriented regulatory change. Appraised critically, the regulation of goodwill reporting arrangements essentially ossified in Australia from the late 1980s onwards. The Accounting Standards Review Board (ASRB) was replaced by the Australian Accounting Standards Board (AASB). ASRB 1013 thus morphed into AASB 1013 - Accounting for Goodwill, with no initial modifications of any substance. Subsequently, after widespread controversy generated by the decision of a small number of highly acquisitive Australian listed companies to apply the inverted sum of the years digits method (ISOYD) as the basis for amortising goodwill, AASB 1013 was refined to expressly require an amortisation period of no more than 20 years coupled with mandatory application of the straight line method. (Day & Hartnett, 2000) Goodwill accounting practice in Australia can therefore be understood as having settled, between the mid 1980s when regulatory intervention was first systematically brought to bear and the advent of A-IFRS into a state of relatively sedate equilibrium. At one pole stood the influence of Applicable Accounting Standard AASB 1015 - Accounting for the Acquisition of Assets, which mandated the use of the purchase method for acquisition accounting. At the other stood AASB 1013, which exhibited a strong bias against write off of goodwill in the immediate wake of an acquisition13 and otherwise required the application of straight line amortisation of goodwill against periodic earnings over a period not exceeding twenty years. This relatively sedate state of affairs was disrupted, to an extent, by revelations that the United States FASB had approved the issuance of SFAS 141 - Business Combinations and SFAS 142 - Goodwill and Other Intangible Assets. In combination, these standards proscribed the use of pooling approaches to acquisition accounting, instead requiring purchase accounting, but on the other hand, removed the requirement for amortisation of goodwill against periodic earnings, instead allowing purchased goodwill to be held indefinitely at cost until impaired, at which time an appropriate write down against earnings would be required. A number of technical articles published in Australia at this time questioned whether the failure of the Australian regulatory regime to immediately move to an impairment based regime similar to that in existence in the U.S after the promulgation of SFAS 141 and SFAS 142 might damage the capacity of Australian domiciled businesses to effectively compete on price on internationally contested acquisition transactions (see for example, Ernst & Young, 2001). Irrespective of domestic lobbying efforts, it was perhaps inevitable given the emphasis placed on international harmonisation, that the U.S. move to an impairment regime coupled with the existence of a similar approach to goodwill accounting under the IFRS regime which was contemporaneously being promoted by the IASB, would jolt countries such as Australia which had maintained their own indigenous reporting standards into contemplation of their own course of action. Ultimately, this crystallised with formal Australian adoption of IFRS for reporting periods commencing on or after January 1 2005. The essence of the new regime (in comparison to the previous regime) can be understood with reference to four overarching themes. 1. The promulgation of an all encompassing applicable accounting standard dealing with all intangibles irrespective of whether or not identifiable, embodied in AASB 138 Intangible Assets. 2. The continuation of the mandatory application of purchase accounting to corporate acquisition transactions embodied in AASB 3 Business Combinations. 3. The continuation of the prohibition on the recognition of internally generated goodwill, and by extension, the reversal of write-downs on purchased goodwill embodied in AASB 136 Impairment of Assets. 4. The abandonment of the traditional recognition