Accounting for Impairments Issues Related to Goodwill Impairment - Research Proposal Example

Background or Introduction

Good will in accounting is often considered as an intangible asset which rises from the purchase of an already existing business, that the asset that comes with the acquisition of a business that was already in operation for a period of time. As set out in the report by KPMG (2014, p. 2), the debate over the contribution that testing of goodwill impairment within financial reporting and how this impacts on the ability of capital markets to work in an efficient. This has become even more important in an environment where the economy has become even more weakened and the impact of these weakened conditions on the goodwill that is present within the balance sheet. However, as is evident, the definability of goodwill is impossible due to the fact that goodwill cannot be separated from an individual or the asset itself (Bohusova & Nerudova 2009, p. 12). Identifiable assets are not included in the look of goodwill because it cannot be separated from the entity, neither can it be transferred, licensed, rented or exchanged from one individual as is the norm attached top other assets in finance. Goodwill plus the assets that are tangible, are often related to a very huge amount of the gauging of a business’s net worth: Therefore the financial Accounting Standards Board or the (FASB) law that regulate the treating of goodwill in general suggest that the treatment of the goodwill has an effect on the overall net worth of a company or an enterprise’s valuation (Fosbre et al 2009, p. 61).

Statement of Purpose and aims

The major aim of this research will be to examine the issues related to accounting for impairments as they are linked to goodwill impairment.

The core aims will be:

• Identify and examine the extent to which issues in accounting for impairments impact on testing of impairment in goodwill
• Collect data on the opinions of financial stakeholders to determine whether there is any link between the manner that they feel about goodwill impairment testing and the relevance they feel it has to determining how well an investment has performed.

Review of Relevant Literature

The present model for impairment only accounting was first brought forward in 2004 in an effort to make a replacement of the previous model that was based on amortisation. The present model was followed by the strategies that had been adopted by the United States Financial Accounting Standards Board. In subsequent years, there has been a significant amount of research to provide support to the perception that changes in impairment will provide a better reflection of the basic economic characteristics regarding goodwill as opposed to systematic charges in amortisation. This was one of the most important reasons why the FASB made a replacement of the straight line amortisation of goodwill with a model that was only based on testing of impairment (KPMG 2014, p. 4).

According to Bichof & Daske (2015, p. 6), the new standard of IFRS 9 was meant to act as a replacement to a significant section of the parts that are presently available under IAS 39 and was as a result of a number of key forces that participated in the due process. Indeed many of those who participated provided support to a number of different regimes for accounting and here a regime that was based on marketing and those based on cost were considered as the two extreme positions that presently exist. In this regard, the newly set out version of the IFRS 9 was seen as a sort of compromise politically reflecting an approach that used mixed measurements. O’Hanlon et al (2015, p. 7) argue that this need for a new standard of measurement was as a result of the fact that both the banking as well as financial crisis that occurred in the 2000s showed the weaknesses that exist within the present standards for accounting which in turn have played a major role in the public’s loss of complete confidence in the overall financial system. One of the core weaknesses that was perceived was a distinct delay under the approach of incurred losses in recognizing the impairments that came from loss of credit is either probable or has already taken place.

The negative good will as it was coined is considered to arise from the fact that there is that the amount paid for the residual basis is excess of the amount that is paid for the consideration in general. That is what is paid for the identifiable assets in the organization are more than the consideration paid. On the other hand SFAS 141 required that a pro rata decrease in the values tagged on the assets that are non-current in order to collectively find the fair value of the acquired assets with regards to the amount of the consideration that was paid by the acquirer(Eissen 2013, p. 45). Under the ASC 805 there is no adjustments that are done on the fair values of the overall assets, what is however looked at is the difference that arises from the aggregate assets plus the amount paid for the consideration will be recorded or documented as a significant additional gain in the incomes of statement. ASC 805 comprehensively changes the accountings that are related to the acquiring that is 100% less than the interest of the equity that is acquired. Under the SFAS 141, the interests that are considered minority or less in the entities that were acquired were documented in historical cost basis (Lerner et al, 2009, p. 34).

Moreover, Camfferman (2014, p. 13) agrees that the financial crisis brought with it the perception that IFRS since, it is founded on an approach that takes on an incurred loss approach created instances when there were overstatements of many financial assets. This is because the IFRS put in place a number of restrictions on recognising losses from loans which forced the IASB to take on a project that would put in place an alternative model for expected loss which would provide the chance for losses gained from loans to be recognised much earlier than they had been. In this regard, amortization is eliminated and is no longer permitted under the ASC 350 that was previously known as the SFAS 142: though it is still seen as an asset. Rather, goodwill and the indefinite lived intangibles are to be subjected to tests that are annual in nature in order for the impairment to be done (Piper, 2013, p. 34). Instead of the amortization being done on the goodwill, enterprises or companies test the level of goodwill usually once every year that is annually. This is a requirement to all the businesses in that they must perform these impairments as required by the act to all their goodwill related financial records. The twostep process is followed after the first Transitional impairment has been completed; the Goodwill impairment Test is the next one that is to be conducted on a yearly basis according to the ASC 350. The process is required to take place in the reporting level unit which is usually seen as the lowest unit in the organization or the entity as a whole. That is the subsidiaries, the business units related to the company, the units that are in operation and the divisions among others (Thomas 2009, p. 35).

In light of this, the background that is in relation to the ASC 805 requires that all the business in all places to be analysed or the overall evaluation to be done by the purchase method that is related to accounting. What it means is that the pooling of the interests that are associated with most of business enterprises is prohibited under this act (Lozada Rivera et al 204, p. 665). The identification of the intangible assets inside a business entity is also provided here, that is intangible assets that fallout of the brackets of goodwill are also given proper guidelines on how to identify them in general. The act also include the guideline that details assignment of values to assets that have been acquired overall and the assumed value of the liabilities that the business has in a certain period of time. ASC 805 has the definition of identifiable assets being part of the good will as: An asset which is considered to be arising from the legal or the contractual right, these rights examples are like the trademark, patents or copyrights of a business (Seay 2014, p. 119).

An asset which different from the contractual ones can be transferred to another party, sold to another party, licensed to another party, rented to another party or overall traded in person or coupled with an amalgam with contracts that are related, assets and the liabilities. Covered by the ASC 805, parties that are involved in a certain business merger often have an obligation to estimate the value that is fairly related to an intangible asset in the manner that falls in the following brackets (Thomas 2009, p. 369). In the first instance the intangible assets must be out into groups that are in relation to the type, that is the lists of the customer, the patents, the trademarks, the software and the intellectual property in an organization among others. The second instance is that the intangible assets that can be identified are have a useful purpose in them remaining, must then be put in separation from the other identifiable assets that have useful life attached to them still (Doupnik et al 2013, p. 23).

Methods

A positivist approach will be taken on to carry out this research with the research questions having been prepared focused on the observations that have been made of the presence of big data in many other industries. The research design will be explanatory in nature since it will strive to single out the opinions that employees of bank branches have and later explains the reasons why they have these perceptions. A mixed research method will also be utilized (Cresswell 2008, p. 35).

Probability sampling will be used for collecting data for this research since it is expected that the population chosen will be more than 50 people who will be chosen using simple random sampling. This particular method of sampling is useful since it will help to provide the researcher with a sample that is free of bias and is also helpful for the questionnaires that will be used to collect data (Cresswell 2008, p. 38).

A questionnaire will be chosen since it will provide an easier method for carrying out analysis. In addition, the questionnaires will provide for the chance to collect data in a manner that will keep the participants anonymous. The questionnaires will be self-completed and copies will be distributed online through the chosen participant’s emails. This will ensure that the participants will be more willing to answer the question. Using this method of distribution also means that the researcher will have the benefit of removing the challenge of the participants being geographically dispersed (Cresswell 2008, p. 40).

Ethical Issues

The researcher will strive to ensure that the questionnaire, within its first section introduces participants to the researcher as well as its topic and aims of research. Since questionnaires will require individual and participation will be voluntary in nature, it will be assumed that all those who participate have provided consent for their data to be used (Denzin & Lincoln 201, p. 32).

Project Plan

Activity

May 2016

June 2016

July 2016

Aug 2016

Sept 2016

Write and Present Proposal

Begin Research

Write Introduction and Literature Review

Get Feedback on Introduction and Literature Review

Collect Primary Data

Data Analysis

Present Chapter Three for revision

Make necessary revisions

Write discussion and recommendations

Get feedback on discussion and recommendation make changes

Complete Research

Make Revisions

Finalize