December 8, 2021

Just What the Hell is Goodwill Anyway?

The problem of what to do with goodwill starts with a rather basic point: the answer to the question “What is goodwill?” appears to be “Nobody knows”. The UK’s old standard, FRS 10, said that goodwill is “neither an asset like other assets nor an immediate loss in value”. Later, the basis for conclusions of IFRS 3 has a lengthy and complicated discussion, concluding that goodwill could comprise six components, four of which are not an asset. This leaves “core goodwill”, which includes such things as an acquiree’s loyal customers and well-trained staff. IFRS 3 claims that these are an asset. They are said, unconvincingly, to be controlled by the acquirer because it has power over the acquiree’s policies and management.

Perhaps the Italians, who invented balancing the books, have the right idea by calling goodwill “differenza da consolidamento”: it is a number that we must insert into the consolidated balance sheet in order to make it balance. This is a liberating idea because it short-circuits any discussion of assets or expenses, allowing us to ask instead which treatment would be most informative to readers of the financial statements. [Chris Nobes for Wiley Insight IFRS — Goodwill: The never-ending puzzle]

Latest Accounting Jobs--Apply Now:

Have something to add to this story? Give us a shout by email, Twitter, or text/call the tipline at 202-505-8885. As always, all tips are anonymous.

Comments are closed.

Related articles

New SOX In the U.K.? It’s (Probably) Coming Soon

The February gloom was broken recently by the news that the British government will be introducing reforms targeting company financial reporting and audit oversight. In truth, none of this should be a surprise. There have been several accounting scandals in recent years where the directors of various companies have been unscrupulous and their external auditors […]