Tyrone M. Carlin

Goodwill Impairment Testing Under IFRS - A False Impossible Shore?

The transition to IFRS based reporting has resulted in fundamental departures from many of the long accepted norms embedded in indigenous GAAP systems now superseded in IFRS adopting jurisdictions. The rules relating to goodwill accounting, measurement and reporting represent an excellent case in point, the traditionally dominant capitalise and amortise regime having been disposed of in favour of an impairment testing regime pursuant to which periodic amortisation charges are no longer required. There has been much criticism of this new impairment testing regime, principally along the lines that it results in an increased potential for opportunism in financial statement preparation due to the subjective and unverifiable nature of a range of judgements necessary to the execution of the impairment testing process. In this paper, we add to the extant literatures catalogue of concerns by documenting systematic non compliance with the disclosure requirements of AASB 136 - Impairment of Assets. We argue that a key problem resulting from this phenomenon is a decline in financial statement comparability. At the policy level, we raise questions as to the implications of the complexity of the IFRS based impairment testing regime both from the preparer and audit perspective.

Accrual Output Based Budgeting Systems in Australia: The Rhetoric-Reality Gap

This paper describes accrual output based budgeting (AOBB) systems and examines their adoption in Australia. An analysis of claims made about AOBB systems by central agency reformers is set out, and the conclusion offered that these claims are fundamentally rhetorical in their characteristics. These rhetorical claims are contrasted against a critical analysis which suggests that despite the claims made by reformist elements in favour of the adoption of these systems, the structural and empirical elements of AOBB systems as implemented in Australia raise considerable doubts as to whether suggested benefits will be realised in practice.

Goodwill Impairment - An Assessment of Disclosure Quality and Compliance Levels By Large Listed Australian Firms

The adoption of A-IFRS has resulted in the introduction of fundamental changes to the Australian accounting and reporting regime for goodwill. The impairment testing led approach to goodwill reporting required under A-IFRS results in a materially different approach to goodwill valuation for balance sheet purposes and to the nature and timing of the influence of goodwill as an asset class on the determination of periodic profit. Arguably, the transition to A-IFRS goodwill accounting and reporting also results in substantially increased complexity - both in terms of the techniques required of reporting entities in accounting for goodwill, and in the nature of disclosures required in relation to goodwill and its impairment. This suggests the possibility of inconsistent compliance and varying levels of disclosure quality by firms making their first reports under the new regime. Consequently, this paper examines the level of compliance with a variety of the provisions of AASB 136 - Impairment of Assets and the quality of disclosure provided in accordance with that standard, by reviewing the 2006 accounts of a sample of 50 large Australian listed corporations. Material levels of non compliance were found and a material degree of variation in the quality and precision of disclosures pertaining to impairment testing procedures was also evident. Policy recommendations and potential directions for future research are identified and discussed.

Resisting compliance with IFRS goodwill accounting and reporting disclosures

Purpose – The purpose of this paper is to report the findings of a study designed to understand the extent of compliance with the goodwill accounting and reporting disclosure requirements under AASB 136 among a sample of goodwill intensive Australian firms over the first two years of their IFRS adoption.Design/methodology/approach – Examining the goodwill reporting practices adopted by a sample of 50 large Australian listed firms, which disclosed the existence of goodwill in each of the first two years in which they produced financial statements pursuant to IFRS. The quality and technical accuracy of the goodwill disclosures produced by these organisations together with an assessment of evidence of variation in these over time provides an evidentiary basis for analysis.Findings – The paper finds continued high levels of non‐compliance with the goodwill accounting standard suggesting that a viable organisational option in the face of change is to fail to take steps to comply. This organisational response u...

Goodwill Accounting in Malaysia and the Transition to IFRS : A Compliance Assessment of Large First Year Adopters

Prior to the adoption of an IFRS based reporting framework in Malaysia, no binding standard governing goodwill had ever been implemented. After several decades in which a laissez faire approach to the problem represented the dominant paradigm, the highly prescriptive and technical provisions of FRS 136 – Impairment of Assets represent a very substantial variation from past practice. This in turn gives rise to questions about the extent to which Malaysian companies and their auditors have fared during the process of transition to a complex new reporting regime and in consequence to the quality and consistency of reports produced pursuant to that new regime. Thus, FRS 136 presents an opportunity to interrogate the level of compliance and disclosure quality exhibited by first‐time reporting entities – and by extension, yield insights into the implications of and challenges associated with transition to new and complex reporting regimes. Focussing specifically on compliance and disclosure quality relating to the highly detailed requirements set out in FRS 136, this paper finds evidence that the quality of the responses by large listed Malaysian firms has indeed been mixed, with many firms producing financial reports that have failed to meet the mark of the new standard. While the move by MASB to adopt IFRSs is a reflection of Malaysia’s commitment to align with global accounting standards in order to achieve harmonization with international practice, these findings suggest that continued improvement will be required by Malaysian companies and their auditors before Malaysian practice is truly aligned to the international standard.

Early Impressions of Australia's Brave New World of Goodwill Impairment

The 2006 reporting year represents the first year in which substantial quantities of financial statements prepared by Australian listed corporations in accordance with the requirements of A-IFRS have become available for inspection. It is the purpose of this paper to develop an impression of the manner in which the Australian goodwill reporting regime, AASB 136 - Impairment of Assets, has unfolded in this initial implementation period. This research focuses on the elections and disclosures made by the 20 largest Australian listed corporations and focuses on the development of a more nuanced comprehension of the degree of conservatism or aggression inherent in value in use estimates employed in their determination of impairment. Several dimensions of the goodwill reporting regime are investigated including, the role of cash generating units (CGU), the estimation of the recoverable amounts of CGU assets, and other key factors such as discount rates, growth rates, forecast periods and terminal values.

Unravelling the Capital Charging Riddle - Some Empirical Evidence from Victoria

Since 1995, the State of Victoria has been experimenting with capital charging regimes for budget sector agencies. The intent of these schemes is to allow the opportunity cost of capital to be reflected in the assessed total costs of outputs produced by agencies the subject of the charge. While literature produced by government central financial agencies has forcefully advocated this experiment, and asserted a range of resulting improvements to budget sector asset management and general financial management practices, academic examinations of the subject have been mixed in their conclusions. Empirical evidence relating to the effect and effectiveness of these schemes has been scarce. This paper seeks to contribute to the literature by providing some empirical evidence on the impact of capital charging in one jurisdiction, Victoria, Australia.

Investigating audit quality among Big 4 Malaysian firms

Purpose - The purpose of this paper is to contemplate the degree to which technical expertise in Malaysian Big 4 auditing practice survives periods of material regulatory inflexion sufficiently to underpin quality financial reporting outcomes. Design/methodology/approach - The adoption of IAS in Malaysia in 2006 introduced a highly technical standard (financial reporting standards – FRS 136) which impacted not only preparers but also auditors of financial statements. This transition period represents a unique opportunity to interrogate the content of financial statements drawn up under new and complex standards, with a view to gaining insight into the quality of oversight offered by the audit profession. Findings - Contrary to the view within the extant literature that there is homogeneity in audit quality among Big 4 firms, this paper reports substantial cross-sectional variation among the sample of Big 4 Malaysian audit firms and reports on distinctly poor compliance levels. Research limitations/implications - The research focuses on compliance with various requirements under FRS 136 – Practical implications - The results raise questions about audit quality among the sample firms and the robustness of regulatory oversight institutions operating within Malaysia. Originality/value - This research illustrates a novel approach to examining the issue of audit quality by introducing a compliance quality approach focusing on note-form disclosures.

FRS36 and post-transition compliance quality among Singapore firms

Purpose - The purpose of this paper is to contemplate the degree to which Singaporean firms comply with the highly technical disclosure requirements required under International Accounting Standards (IAS) IAS 36 specific to goodwill impairment testing. Design/methodology/approach - The adoption of IAS in Singapore from 1 July 2004 introduced a highly technical standard (financial reporting standards – FRS 36) which has challenged many preparers. While it is generally accepted that accounting compliance may be suboptimal in transition periods as preparers accommodate change, it is assumed compliance quality improves with the passage of time. This study examines compliance of the largest 168 Singaporean goodwill-intensive firms over a three year period, 2005-2007, to interrogate compliance quality post-transition. Findings - The paper reports distinctly poor compliance systemically over the three years across many facets of goodwill impairment testing disclosures including cash-generating unit (CGU) definition and goodwill allocation, and key input variables used in estimating CGU recoverable amounts. Practical implications - The results raise questions about the quality of accounting information among goodwill-intensive firms in Singapore and the robustness of regulatory oversight institutions operating within Singapore. Originality/value - The paper illustrates a novel approach to examining the issue of accounting quality under IFRS by examining compliance quality through large sample time-series analysis focusing on note-form disclosures.

Questioning the Big 4 Audit Quality Assumption: New Evidence from Malaysia

Audit quality can be defined as relating to the probability that financial statements contain no material omissions or misstatements. Previous research on the subject of audit quality relies on the assumption that large audit firms (Big 4) are homogenous in providing higher audit quality than small audit firms (non-Big 4). However, there is little evidence in extant literature supportive of quality differentials between Big 4 firms, except that the collapse of Arthur Anderson certainly undermines this assertion that large auditors are associated with higher audit quality. In this study, we develop a methodology to distinguish audit quality among Big 4 audit firms and attempt to question the homogenous audit quality assumption. In exploring this theme, this paper examines the audited disclosures made during the transition period under FRS 136 - Impairment of Assets (the Malaysian equivalent to IAS 36) of a sample of large Malaysian listed corporations who each have engaged Big 4 auditors. The results of this study are alarming, finding systemic failure on the part of Big 4 auditors in Malaysia to comply with even the most basic elements of the FRS 136 disclosure framework in relation to goodwill impairment testing.