Pre and Post-IFRS Regulations for Goodwill and Their Effect on Financial Statements. A Comparative Study

The most important effect of the international harmonization of goodwill regulations was the substitution of amortization by an impairment test to enable comparison of financial statements from different countries. However, regulating bodies like the FASB, the IASB or the European Parliament have now adopted certain measures which once again reintroduce amortization without eliminating the impairment test. For this reason, this study aims to contrast the effect that amortization or impairment has on the financial statements drawn up after the adoption of the IFRS, 2004 to 2011, in Spanish companies listed in the securities market. To do so, a series of ratios linked to goodwill will be analyzed, as well as, ROA, ROE and debt-to-equity and solvency ratios. Although, there are several studies on the impact of amortization or impairment on financial statements, they are insufficient and inconclusive. This study will contribute to providing evidence about this impact through an innovative focus, based on data from after its application, covering a longer period and making a direct comparison between both methods. The results will reveal that the ratios calculated with impairment are generally better, and the application of statistical techniques will determine that for the majority of the ratios the differences are significant