The rationale of the paper is that the current financial crisis, which has deeply affected the economic situation and future forecasts, may also impact on the results of the impairment test procedure and on the quality of disclosure on intangibles and impairment test. Moreover, companies may be incentivized to increase the size of their CGUs, so that the amount of possible goodwill impairment is mitigated by surplus assets. Our research answers to the following questions, with regard to the companies included in the Italian FTSE MIB. a) What are the results of the impairment test procedure in 2008, compared to previous years? b) Are there any differences in disclosure in 2008, compared to the previous year? c) Have CGUs changed from 2007 to 2008? That being the case, can we put forward implications on the “real” reasons for the change? That is to say, are there economic reasons for the change, or is the change related to earnings management purposes? We run a specific analysis on goodwill, since the “volatility” of its value is normally greater than the one of other assets. Moreover, we separately examine banks and insurance companies (B&ICs), both because the financial crisis hit their financials severely and they are under strict control by their Regulatory Bodies. In other words, they seem an interesting field of research under both the evaluation and the disclosure perspective of analysis. The results of this preliminary research demonstrate an increased level of impairment losses in 2008, more evident for B&ICs. Companies which record impairment losses disclose more information and present a weaker economic situation than the control group. Such results suggest further developments of the research, both in terms of evaluation and disclosure issues.
Impairment losses and changes in the composition of CGUs: Anything new after the storm?
FLORIO, Cristina;
2010-01-01
Abstract
The rationale of the paper is that the current financial crisis, which has deeply affected the economic situation and future forecasts, may also impact on the results of the impairment test procedure and on the quality of disclosure on intangibles and impairment test. Moreover, companies may be incentivized to increase the size of their CGUs, so that the amount of possible goodwill impairment is mitigated by surplus assets. Our research answers to the following questions, with regard to the companies included in the Italian FTSE MIB. a) What are the results of the impairment test procedure in 2008, compared to previous years? b) Are there any differences in disclosure in 2008, compared to the previous year? c) Have CGUs changed from 2007 to 2008? That being the case, can we put forward implications on the “real” reasons for the change? That is to say, are there economic reasons for the change, or is the change related to earnings management purposes? We run a specific analysis on goodwill, since the “volatility” of its value is normally greater than the one of other assets. Moreover, we separately examine banks and insurance companies (B&ICs), both because the financial crisis hit their financials severely and they are under strict control by their Regulatory Bodies. In other words, they seem an interesting field of research under both the evaluation and the disclosure perspective of analysis. The results of this preliminary research demonstrate an increased level of impairment losses in 2008, more evident for B&ICs. Companies which record impairment losses disclose more information and present a weaker economic situation than the control group. Such results suggest further developments of the research, both in terms of evaluation and disclosure issues.
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