Cross-country differences in goodwill impairment - A study of the use of discount rates, terminal growth rates, and cash-generating units under IFRS from 2005 to 2013

Sammanfattning: This study investigates the cross-country use of elemental components under IFRS when testing for goodwill impairments with the value in use-method. The study is based on the aspect of accounting conservatism and studies 290 large listed companies in three countries: the U.K., Sweden, and Germany, during the period of 2005-2013. The study finds that there exist cross-country differences in the application of elemental components when conducting the impairment testing in the studied countries. Whether these differences are in line with the expectations on conservatism may be an area of interpretation. It was found that (1) the level of impairment testing varied between the countries, with the U.K. testing for impairments on a cash-generating unit-level most frequently (2) the discount rate used was higher in the U.K., (3) Germany had the lowest terminal growth rate and the U.K. the highest, and (4) the U.K. and Sweden have been better at disclosing information compared to Germany in the initial years, however the gap regarding disclosure has become fairly small in the final years. The study also found a significant difference in the manner of which each country chooses to disclose the same information. The findings may be of interest for standard setters, academia, investors, and practitioners.