Additionally, impairment charges also allow investors to be able to assess corporate management and how they make decisions. Companies that write off a lot of charges due to impairment have not made strategic investment decisions. On the other hand, managements that choose to take an all-encompassing charge should be viewed more favorably than companies that take recurring impairment charges-manipulating their position.
Recent research conducted by KPMG, indicated “impairment charges have the tendency to lag behind share performance by up to two years (KPMG, pg. 8).” Typically, impairment charge offs are delayed behind actual business developments. According to KPMG, results of the research were not entirely clear “ if this lag can be attributed …show more content…
The leeway of managerial discretion, further adds to the difficulty of an analysts forecasting task. Studies show that, when the forecasting task is difficult, the analysts forecast is affected. The most commonly affected properties on the analysts forecast due to goodwill is forecast accuracy and forecast dispersion. Analysts forecast accuracy is negatively affected by restructuring charges (Chaney, Hogan, & Jeter, 1999), international diversification (Duru and Reeb 2002), complexities of tax laws (Plumlee, 2003), and harder to read 10-Ks (Lehavy, Li, & Merkley, 2011). Since managerial manipulation can result in no impairment being reported, uncertainties with goodwill are present even when impairment is not …show more content…
These events and circumstances include: macroeconomic conditions, condition of the market and industry, cost factors (increase in materials/labor that may have negative effect on earnings), overall financial performance, relevant company specific events (change in management, potential bankruptcy, litigation), sustained decrease in share price and a host of other circumstances. A company should always take the time to consider the extent to which the adversity could affect their fair value in comparison to carrying amount. Goodwill impairments, like all things related to accounting, has its positive and negative factors. Testing goodwill for impairment provides a great deal of benefits for financial statement users- enabling them to have a clear picture of how changes in goodwill; and heightening their ability to assess future profitability and cash flows of a company without the extra
Recent research conducted by KPMG, indicated “impairment charges have the tendency to lag behind share performance by up to two years (KPMG, pg. 8).” Typically, impairment charge offs are delayed behind actual business developments. According to KPMG, results of the research were not entirely clear “ if this lag can be attributed …show more content…
The leeway of managerial discretion, further adds to the difficulty of an analysts forecasting task. Studies show that, when the forecasting task is difficult, the analysts forecast is affected. The most commonly affected properties on the analysts forecast due to goodwill is forecast accuracy and forecast dispersion. Analysts forecast accuracy is negatively affected by restructuring charges (Chaney, Hogan, & Jeter, 1999), international diversification (Duru and Reeb 2002), complexities of tax laws (Plumlee, 2003), and harder to read 10-Ks (Lehavy, Li, & Merkley, 2011). Since managerial manipulation can result in no impairment being reported, uncertainties with goodwill are present even when impairment is not …show more content…
These events and circumstances include: macroeconomic conditions, condition of the market and industry, cost factors (increase in materials/labor that may have negative effect on earnings), overall financial performance, relevant company specific events (change in management, potential bankruptcy, litigation), sustained decrease in share price and a host of other circumstances. A company should always take the time to consider the extent to which the adversity could affect their fair value in comparison to carrying amount. Goodwill impairments, like all things related to accounting, has its positive and negative factors. Testing goodwill for impairment provides a great deal of benefits for financial statement users- enabling them to have a clear picture of how changes in goodwill; and heightening their ability to assess future profitability and cash flows of a company without the extra