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The IVSC Boards have discussed the topic and concluded that the best way to aid the public discussion is by publishing a three-part article series to explore certain fundamental questions in this area, aiming to inform financial statement preparers, reviewers, and users, and aid the capital market.
In the first of three articles, the IVSC explore whether goodwill is economically a wasting asset, and if so, if the life and implicit decline in value can be reasonably estimated and supported.
Is goodwill a wasting asset with a readily determinable life, or an indefinite lived asset that is best tested through regular impairment assessments? The evidence set out in the article indicates that goodwill is not a wasting asset. This conclusion is supported by both a functional analysis of the components of goodwill and consideration of how businesses are valued and priced for transactions. Finally, it should be noted that this conclusion is supported by empirical evidence. Almost all impairments represent large irregular charges resulting from a discrete event or short series of discrete events, rather than smaller regular impairment charges that consistently occur over time. Additionally, if goodwill largely diminishes over time, then you might expect a preponderance of goodwill impairments for all companies across all industries? In reality, of the total goodwill recognised in business combinations, only a small percentage has been impaired.
Perspectives paper: Business Valuation - Is Goodwill a Wasting Asset?