RR 17 in an economic boom : The impairment procedure of goodwill

University essay from Umeå universitet/Handelshögskolan vid Umeå universitet; Umeå universitet/Handelshögskolan vid Umeå universitet


In 2005 a new recommendation was implemented, IAS 36 "Impairment of intangible assets". The Swedish translation of the recommendation is RR 17. The previous treatment of impairment of goodwill was to amortize it over a certain amount of years. In order for a company to make impairment, they had to estimate the decrease in value of goodwill to be permanent. The new recommendation RR 17 on the other hand states that goodwill should be impaired as soon as an indication of impairment loss is revealed. This implies that the new recommendation shows the fair value of goodwill. Our problem description is; how does the impairment procedure of goodwill in companies applying RR 17 look like?

In order to reach the purpose of this study, which is to understand the impairment procedure of goodwill, we used four sub questions; (1) How does goodwill arise? (2) How is goodwill divided between cash generating units? (3) How do stock listed business combinations in accordance with RR 17 estimate whether an impairment loss of goodwill exist or not, in cases where goodwill exist, how is it impaired? (4) How is goodwill revalued and how often?

The study has mainly taken a hermeneutic approach because we strive to understand the impairment procedure of goodwill. We conducted a qualitative study, with semi- structured interviews. Four companies, which operate in somewhat different branches, were chosen in order to get a diversified illustration of different business areas and see if there were any differences between them.

Our central concepts present general accounting principles as well as accounting principles handling impairment of goodwill, which helps the reader to receive a better understanding of the essential concepts concerning the impairment procedure of goodwill. In the analysis we connect our empirical findings with the central concepts in order to discover more dimensions of the impairment procedure of goodwill.

The result from our interviews showed that the companies follow the recommendation RR 17. However we could identify some differences between the companies, which we believe are due to the fact that the companies operate in different business areas and are therefore faced with somewhat diverse risks. Further we could link the differences to be correlated to the mindsets and demands of the companies’ auditors.

Finally we want to make the reader aware of the fact that the recommendation RR 17 has so far only been applied in an economic boom and therefore when we conducted this study the need to impair goodwill was very small.


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