The CFA Institute released the results Tuesday of a global survey of investment professionals on accounting for goodwill, related disclosures, and how those issues are affecting analysis and investment decision-making.
The survey found that investors would prefer one consistent approach, focused on disclosures, instead of amortization.
The survey comes as the Financial Accounting Standards Board and the International Accounting Standards Board are discussing a change in goodwill accounting, moving away from impairment to only amortization. The CFA Institute wants both standard-setting boards to agree on a common approach.
“Standard-setters must perform an appropriate cost-benefit analysis and ensure that any change will meet the criteria (i.e., enhancing the decision-usefulness of financial statements) before making a financial reporting change,” said a
The survey found that investors want to see improvements to disclosures that facilitate the assessment of post-acquisition deal performance over a reversion to amortization. They aren’t satisfied with existing disclosures and want improved disclosures irrespective of any change to amortization. Investors think impairment testing should be more transparent and timely, but it provides decision-useful information to investors and should be retained.
The CFA Institute found investors would prefer to see a unified approach for goodwill from policymakers, with 94% believing the IASB and FASB should follow the same approach in the subsequent measurement of goodwill. More investors (58%) believe impairment testing should be retained, as opposed to reverting to amortization, but they would like to see better disclosures that facilitate the assessment of post-acquisition deal performance.
A 70% majority of investors indicated that current goodwill and impairment disclosures aren’t useful, and 66% want to see improvement in disclosures before any changes in impairment accounting, while 88% would like improvement in such disclosures regardless of any change in accounting.
While noting that amortization may be administratively convenient for financial statement preparers, investors found that amortization reduces the decision-usefulness of financial statements. Even if it’s implemented, investors want improved disclosures and the survey respondents believe amortization only increases the costs to preparers.
Investors are looking for various improvements related to impairment disclosures. In order of priority, they are:
- Valuation models and related estimates and assumptions are key;
- Quantitative information on how an acquisition performs over time relative to original business objectives;
- Key common performance metrics that management uses to monitor the acquisition;
- Qualitative information on how the deal performed (but quantitative information was noted as more important); and,
- More information on how the board assessed the acquisition’s performance over time.
Overall, investor views on goodwill seems to be more in line with the IASB’s approach, but investors are nearly unanimous in supporting a consistent approach for IFRS and U.S. GAAP.
