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]