The Big Four firm interviewed around thirty senior stakeholders from business, investors, regulators and academics around the world to find out their views on goodwill impairment testing.

Mark Vaessen, KPMG’s global IFRS leader, said: ‘Although interviewees identified that goodwill impairment testing is relevant in assessing how well an investment has performed, they noted that its relevance to the market is in confirming, rather than predicting, value. Interviewees also highlighted that the degree of subjectivity involved in assessing goodwill limits its effectiveness, and the high number of judgments and assumptions make it a complex and time-consuming exercise.’

The research indicated strong support for a return to the amortisation of goodwill, where the value of the asset is reduced to reflect their reduced worth over time. 

‘Combined with the feedback on the subjectivity and complexity of goodwill impairment testing, it begs the question whether it’s time to simplify the accounting for goodwill,’ Vaessen said.

KPMG says its research indicates three key issues to be addressed. The first is whether the accounting model should be simplified, given that companies said goodwill impairment testing was a costly and time-consuming exercise. One option to consider would be to move to indicator-based testing rather than an annual test, with or without a return to amortisation over a capped period. The third consideration is further exploration of why users are asking for enhanced impairment disclosures.

The International Accounting Standards Board (IASB) is currently reviewing the treatment of business combinations accounting under IFRS.