Editorial

Accounting for goodwill continues to be in the spotlight this month, and there is news on this from both sides of the Atlantic. An accounting standards update issued by the FASB expands its relief on accounting for goodwill from private companies to not-for-profit organisations. The relief has a number of features, the key one being that it permits the relevant entities to amortise goodwill with impairment testing required only where there is an indication that goodwill is impaired. Meanwhile, at the IASB board meeting in Canary Wharf, discussion focused on ways to enhance the information provided to investors in the years following an acquisition. The Board was particularly keen to see investors given information to allow them to judge whether an acquisition has been successful, and it also considered a possibility of offering relief from annual impairment testing by requiring it only if there were an indication that goodwill is impaired. To some extent, the IASB is grappling with inherently contradictory problems in that, on the one hand, the existing impairment requirements do not seem to be effective, with the result that high profile companies, such as Carillion, have collapsed with large goodwill balances propping up their balance sheets; whilst, on the other hand, companies claim annual impairment testing is costly to perform. The Board is struggling to find a way to make the accounting more robust by ensuring that goodwill balances are written off on a timely basis and, at the same time, to simplify it, so that it is easier and less expensive. There does not seem to be an easy answer to this dichotomy and, while amortisation might at least prevent goodwill balances from sitting on balance sheets indefinitely, it lacks meaningful information value. I attended the meeting on the day of this discussion and the atmosphere was tense. The Board is certainly conscious of the reputational risk arising from this issue which must make the lack of any clear technical direction all the more frustrating. It is no surprise that as the discussion terminated the Board remained divided in its views on the proposal of offering relief.