The issue goodwill impairment is controversially discussed in practice and in literature because goodwill or rather the amount of goodwill which has to be impaired primarily based on managerial assumptions and proprietary information and further the recognition and accurate measurement is not easy and thus often not free from error. Therefore the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) require firms to disclose specific information on how and why goodwill arises in business combinations.
Goodwill accounting is intended to provide information on the financial consequences of mergers and acquisitions. It is therefore potentially very important for recipients of annual financial statements. Goodwill accounting in Europe is generally regulated in the International Financial Reporting Standard 3 (IFRS 3) Business Combinations and International Accounting Standard 36 (IAS 36) Impairment of Assets.
Goodwill accounting in the US is regulated in Accounting Standards Codification 805 (ASC 805) Business Combinations (formally known as Statement of Financial Accounting Standards No. 141 (SFAS 141)) and ASC 350 Goodwill and other Intangible Assets (formally known as SFAS 142). Goodwill is defined as an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognised.
Besides goodwill impairment, Corporate Social Responsibility (CSR) activities has become another steadily increasing issue around the world and has gained significance in the view of public policy and management practice. CSR is often defined as “the social responsibility of business encompasses the economic, legal, ethical and discretionary expectations that society has of organizations at a given point in time.” Especially the relationship between a firm´s CSR and its firm performance, earnings quality and information asymmetry has been subject of accounting literature and research. If specific socially responsible actions tend to be negatively correlated with firm performance, managers could be cautious in this area. If, on the other hand, a positive association can be shown to exist, managers might be encouraged to enhance such activities.
Table of Contents
1 Introduction
2 Theoretical and Institutional Background
2.1 How to determine goodwill (impairment) under IFRS and US-GAAP
2.2 CSR Reporting
2.2.1 CSR Reporting in Europe
2.2.2 CSR Reporting in the United States
3 The link between Goodwill Impairment and CSR
3.1 Goodwill impairment
3.2 Corporate Social Responsibility
3.3 Association between goodwill impairment and CSR
4 Critical Appraisal
4.1 Evaluation of the applied Models / measurement variables
4.2 Practical Relevance and further research
5 Conclusion
Objectives and Core Topics
This seminar paper investigates the theoretical and empirical relationship between goodwill impairment and Corporate Social Responsibility (CSR) reporting within the institutional frameworks of the USA and the European Union, focusing on how managerial incentives and firm performance influence these accounting and reporting decisions.
- Regulatory frameworks for goodwill impairment under IFRS and US-GAAP
- Voluntary versus mandatory CSR reporting structures in the US and EU
- The impact of management incentives (bonus, tenure, CEO-turn) on goodwill impairment decisions
- The correlation between CSR performance and financial outcomes
- Strategic implications of CSR activities in mitigating reputation risks and information asymmetry
Excerpt from the Book
3.3 Association between goodwill impairment and CSR
There is a close link between the three main factors firm performance, management incentives and firm-level incentives that influence CSR and goodwill impairment. Therefore there should be an association between CSR and goodwill impairment. As a consequence CSR could lead to a better prediction of goodwill impairments.
There supposed to be a negative association between the unexpected, discretional part of goodwill impairment and CSR and a positive association between the expected, economical part of goodwill impairment.
There are just few empirical literatures investigating the link between CSR and goodwill impairment. The paper by Golden et al. (2017) is the first paper which directly investigate the association between CSR activities and goodwill impairment in the United States and additionally demonstrate the importance of CSR activities in preventing goodwill impairment and mitigating the manipulation of goodwill impairment losses.
Golden et al. (2017) found a negative association between CSR and the likelihood of goodwill impairment. These results suggest that companies with responsible CSR activities are less likely to incur goodwill impairment. They argue that their results are in line with the stakeholder theory which suggests that companies receive more useful information from their stakeholders if they include them in processes which, in return, help them to make better decisions.
Summary of Chapters
1 Introduction: Provides the motivation for the study, outlining the controversies surrounding goodwill accounting and the growing relevance of Corporate Social Responsibility.
2 Theoretical and Institutional Background: Explains the technical determination of goodwill impairment under IFRS/US-GAAP and compares the voluntary/mandatory CSR reporting landscapes in Europe and the US.
3 The link between Goodwill Impairment and CSR: Analyzes the drivers of goodwill impairment, the nature of CSR performance, and the empirical evidence linking responsible corporate behavior to financial reporting quality.
4 Critical Appraisal: Discusses the methodological limitations of existing literature, such as small sample sizes and cross-country differences in institutional settings.
5 Conclusion: Synthesizes the main findings, confirming that management incentives significantly influence both goodwill impairment and CSR reporting, and suggests avenues for future research.
Keywords
Goodwill Impairment, Corporate Social Responsibility, CSR Reporting, IFRS, US-GAAP, Firm Performance, Management Incentives, Big Bath Accounting, Income Smoothing, Stakeholder Theory, Information Asymmetry, Financial Reporting, Accounting Discretion, Earnings Management, M&A
Frequently Asked Questions
What is the primary subject of this seminar paper?
The paper examines the intersection of financial accounting, specifically goodwill impairment, and the non-financial field of Corporate Social Responsibility (CSR) reporting within US and European corporate contexts.
What are the core thematic fields covered?
The core themes include the regulatory requirements for goodwill, the voluntary vs. mandatory nature of CSR reporting, and the behavioral factors influencing corporate financial decisions.
What is the main research objective?
The objective is to determine how CSR activities and management incentives are associated with the recognition of goodwill impairment and the quality of financial information disclosed by firms.
Which scientific methodology is applied?
The paper utilizes a literature-based synthesis, reviewing existing empirical studies and accounting standards to identify patterns and correlations between accounting choices and corporate social performance.
What topics are discussed in the main body?
The main body details the technical processes of impairment testing, the varying institutional approaches to CSR in the EU and US, and the influence of incentives like CEO-turn and earnings smoothing on reported data.
How would you characterize this work through keywords?
Key terms include goodwill impairment, CSR reporting, stakeholder theory, information asymmetry, management incentives, and financial performance measures such as ROA and ROE.
How do US and European approaches to CSR differ according to the text?
The text notes that Europe has moved toward mandatory disclosure through EU directives, whereas the United States relies more heavily on voluntary disclosure and market pressure.
What role do management incentives play in goodwill impairment?
Managers may use their discretion in impairment testing to manage earnings, often delaying write-offs to avoid reporting losses that might negatively impact their compensation or reputation.
What is the empirical link between CSR and goodwill impairment?
Research suggests a negative association; firms that engage in high-quality CSR activities are generally less likely to incur goodwill impairment, possibly due to better decision-making processes.
- Citar trabajo
- Anonym (Autor), 2019, Goodwill Impairment and Corporate Social Responsibility, Múnich, GRIN Verlag, https://www.grin.com/document/594567
