The Associations between the Goodwill Impairments and the External and Internal Economic Indicators

Abstract: After the adoption of IFRS 3 and IAS 36 in 2005, goodwill and its related impairment have been criticized recently about their reliability and the true presentation of the economic value on the company’s financial statements. The valuation of goodwill and its impairment were subjected to an idea of the earnings management, where the management of the company subjectively decided the values to be realized, especially, the value of goodwill impairment that was criticized and questioned about its association with economic impairment indicators. However, this is in contrast with the purpose of IAS 36 on enhancing the fair presentation of the goodwill’s value, and the requirement that the company should consider and follow the economic impairment indicators while evaluating the goodwill impairments. The purpose of this study is to examine the association between the goodwill impairments, which were recorded by the listed telecommunication companies in Sweden (NASDAQ OMX Stockholm) during the year of 2005 to 2014, and the external and internal economic indicators. The Swedish listed telecommunication companies on NASDAQ OMX Stockholm were selected for this study with the reason that the companies in telecommunication industry have more possibilities to face with higher risk of impairment due to the high value of recorded goodwill. Moreover, the data was collected from information available on the company’s annual reports, and the discussion was based on the usages of tables and diagrams. Consequently, the results of this study have revealed that the values of goodwill impairments recorded by the selected companies did not associate with the external and internal economic indicators during this ten-year period. Additionally, this lack of association between these variables could also be explained by the ideas of agency theory and earnings management.