The European Securities and Markets Authority (ESMA) has published a review of 2011 IFRS financial statements related to impairment testing of goodwill - the value of intangible assets which has a quantifiable value - and other tangible assets.

The review, which looked into the accounting practices of a sample of 235 European issuers from 23 countries, found €800bn (£667bn) worth of goodwill balances in the 2011 financial statements of issuers, with 5% (ca €40bn) of that amount recognised as impairment losses in 2011. This compared with goodwill of €790bn in 2010.

Steven Maijoor, ESMA chair, said: 'Good quality financial information is key for investors in understanding the financial health of an issuer in whom they hold assets or in who they may wish to invest.

'Goodwill and its impairment are key components in making a realistic evaluation of firms. In that respect ESMA's review will help in providing a more harmonised approach to the disclosure of goodwill impairment under IFRS throughout the European Union.'The report shows that significant impairment losses of goodwill were limited to a handful of issuers, mostly in the financial services (€19.2bn) and telecommunication industry (€9.7bn).

Although the major disclosures related to goodwill impairment testing were generally provided, in many cases these were of the boilerplate variety and not entity-specific.

ESMA has made a series of recommendations for issues, including:

• Improve the overall quality of disclosure, including improvements in specifying the key assumptions used in the impairment test;
• Include sensitivity analyses with sufficient detail and transparency, especially in situations when indicators are present that impairment might have occurred;
• Determine the growth rates used to extrapolate cash flows projections based on budgets and forecasts, and;
• Disclose specific discount rates for each material cash-generating unit rather than average discount rates.

In addition, ESMA and national standard setting authorities responsible for International Financial Reporting Standards (IFRS) enforcement will use the review's findings as a basis for their assessments when reviewing 2012 IFRS financial statements.