Goodwill Impairment - Research Paper Example

However, there are several noticeable differences in the two accounting approaches as listed below: In the context of allocation of Goodwill, allocation is done to an operating unit in case of U.S. GAAP. In IFRS language, its allotment is done to a small group of assets that generates flow of cash and such unit has to be smaller than the operating segment of a company. In the context of the recognition of the loss of impairment, the US GAAP considers such a case if the implied fair value exceeds the amount for carrying of a particular reporting unit and the amount for carrying of the goodwill (Alexander & Britton, 2004).

It is a two step approach. On the other hand, in case of IFRS, which follows a one step approach, weigh cash generating unit’s amount carried against the amount that can be recovered. Impairment of loss is spotted when the former is greater than the latter. In US GAAP parlance, the loss of impairment is the amount of difference between the carried amount of goodwill and the reporting unit’s fair value that is implied. In terms of IFRS, it is the amount the former exceeds the amount that can be recovered.

The loss thus arisen would be provisioned for Goodwill impairment until the latter is zero. Pros and cons of measuring Goodwill Impairment The measurement of goodwill has several positives aspects to it. If the process is undertaken with precision and accuracy, it will provide helpful information about the net worth for the investors of the company. If the financial information is overstated then it provides a wrong idea about the future to the manager across other departments and hence they would take wrong decisions.

Hence an accurate measurement would help the other departments as well. The disadvantages of measurement is that if there is too much goodwill for a company to write off then it sends a negative impression to the investor about the management that they have records of taking wrong decisions. Often the determination of the fair value of goodwill is not disclosed by the company and hence there is ample scope for manipulation which can have its effect on the bottom line. There are various models that can be used for measuring of goodwill impairment and there is difference in opinion among expects regarding which method is to be taken.

Hence depending on the method the value could vary. There is also another problem of separation of goodwill at the time of acquisition of a company and the total value of goodwill post acquisition. How convergence should work and why Though having several basic differences, the IASB and FASB should aim at convergence of the two standards with an aim to achieve a superior global standard of accounting. Both of them should work in harmony in areas like insurance and financial instruments. The reversal of the loss of impairment is prohibited in both U.S.GAAP and IFRS.

In areas of offsetting of balance sheet they could not be of the same opinion. However they achieved successful convergence in areas like disclosure norms which would help them in the reconciliation of the differences in requirements for offsetting. Convergence is necessary for Unites States as well as the world because it would affect areas of leasing and revenue as well. The American Companies also need to look upon certain issues relating to it. For example, some nations have already adopted the IFRS standards and the subsidiaries of the MNCs that are there in those countries have to