What is Goodwill Financial Statements?

ESMA’s review of disclosures relating to impairment testing of goodwill and other intangible assets, and recommendations on application of IAS 36  January 24, 2013 – 03:53 pm
of goodwill and purchased

On Monday ESMA published a report on its review of impairment of goodwill and other intangible assets in IFRS financial statements.  The report raises a number of issues of concern, makes recommendations to improve the application of IAS 36 (Impairment of Assets), and sets out ESMA’s expectation for issuers and their auditors, and for enforcement, going forward.    

Issues of concern identified

ESMA has identified 5 areas of concern:

1. Disclosure of, and discussion of management’s approach in determining, key assumptions for impairment testing

  • only 60% of issuers discussed key assumptions used for cash flow forecasts (other than discount rate and growth rate used in the impairment testing) and of those, about half failed to provide the details (required under IAS 36) of relevant entity-specific information – so overall, ESMA concluded that 70% failed to provide adequate disclosure of key assumptions.

2. Disclosure of the sensitivity of the impairment calculation to changes in key assumptions and the use of realistic estimates in determining possible changes that would cause the carrying amount of the cash generating unit to exceed its recoverable amount:

Source: Herbert Smith Freehills FSR notes

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