Implementation of IFRS 3 and Goodwill Accounting -From a Financial Analyst's Perspective

Abstract: Background and Discussion: Few topics are as widely discussed as goodwill and IFRS 3, and several debates address the difficulties of valuation, accounting, allocation, and impairment tests of goodwill. The original intentions of IFRS is that the users of the financial statements must be given enough information about the companies’ earnings in order to make an appropriate assessment of the relevance of the goodwill. The financial analysts play an important role on the financial market, since they are frequently viewed as information intermediaries who gather, process, and distribute information for investors. Therefore, their perception of financial statements is of great importance. This study aims to further investigate the implementation of IFRS 3 by the following research question: ‐ Is the accounting for goodwill consistent with the purpose of The Conceptual Framework for Financial Reporting? Aim of study: The purpose of this paper is to investigate and clarify the financial analysts’ view of the implementation of IFRS 3 and the issues concerning allocation of surplus values in corporate acquisitions and the implementation of impairment tests. Methodology: The study was carried out through interviews with three financial analysts working with major investments as the basis for our empirical data. The interviews were conducted both personally and via telephone, transcribed, and later on analyzed. The study adopts a qualitative character where the results give an indication of similarities and differences between theory and reality. Results and conclusions: The fact that the accounted value for goodwill is neither perceived as reliable, nor comparable, indicates that the purpose of the Conceptual Framework for Financial Reporting is not met. The results show that the financial analysts devote time and energy trying rather to understand the underlying factors that contribute to the company’s earnings than assessing the accounted values for goodwill in the financial reports. However, even though there is a noted problem with today’s accounting for goodwill, this has limited impact on the financial analysts we have met. We have found no indicators of the deficiencies regarding accounting for goodwill being so severe that they result in inaccurate evaluations by the financial analysts.