Impact of IFRS on Goodwill Impairment

This assignment delves into the effects of International Financial Reporting Standards (IFRS) on goodwill impairment testing within companies. It examines how IFRS has influenced the process of identifying and measuring impairments, as well as the disclosure requirements related to goodwill. The analysis also considers the impact of IFRS adoption on firms' financial reporting practices. A literature review provides context and supports the discussion.

Running head: ADVANCED FINANCIAL ACCOUNTING
Advanced Financial Accounting
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Table of Contents
Part A:..............................................................................................................................................2
Part (i):.........................................................................................................................................2
Part (ii):........................................................................................................................................2
Part (iii):.......................................................................................................................................3
Part (iv):.......................................................................................................................................4
Part (v):........................................................................................................................................4
Part (vi):.......................................................................................................................................5
Part (vii):......................................................................................................................................5
Part (viii):.....................................................................................................................................5
Part B:..............................................................................................................................................6
Part (i):.........................................................................................................................................6
Part (ii):........................................................................................................................................7
Part (iii):.......................................................................................................................................7
Part (iv):.......................................................................................................................................8
Part (v):........................................................................................................................................8
References:......................................................................................................................................9

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Part A:
Part (i):
As per the financial statements report of Sai Global limited for the year 2015,
impairment testing for several asset classes was carried out. Several intangible assets with
goodwill are not amortized and they are further tested for annual impairment. In case frequency
is more than once annually because of differences within situations or events it indicates that
assets might are impaired and are mentioned within the annual report at less cost with
accumulated impairment loss (Amel-Zadeh et al. 2016). Some different assets like the trade
receivables along with property, plant and equipment with inventory are taken into impairment
testing while there is an indication that the assets carrying amount might not be recoverable.
Part (ii):
Sai Global limited carries out a two-step process in impairment testing. The first step is to
align by the fair value of reporting unit within its carrying value that includes the goodwill. In
case the operating unit’s carrying value is higher in contrast to the fair value, the second step
associated with impairment testing must be conducted for ensuring the amount of impairment
loss in case it takes place (Carlin, Finch and Manh Tran 2014). The second step explains the
impaired fair value of reporting unit along with the carrying amount associated with the unit. In
case the implied fair value is lesser in comparison to the carrying amount, certain charge of
impairment is realized within the amount related to that excess. Such realized loss cannot be
more than the asset’s carrying amount.

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Part (iii):
The company experienced the below impairment expenditures for the end of the period
on 30th June, 2015.
Goodwill and Intangible Assets
During such period, the company has explained a total impairment of $59841 ($77748 -
$17907), out of which $841 was stated within the software, $ 9000 was mentioned for the
consumer contracts and $ 50000 was mentioned for the IRU. Conversely, goodwill and brands
are not accountable for the impairment (Benson et al. 2015).
Intangible Assets and Goodwill
Trade Receivables
In the year 2015, the company represented an allowance for the impairment loss of $
2563 in the year 2015 that was recorded to be $ 1748 in the year 2014.

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Part (iv):
The company is associated in making estimates based on certain concerns for the future
years. Such results of accounting anticipations through definition might be similar with
associated real results (Bepari and Mollik 2015). For calculation of value-in-use certain
estimations are considered such as:
 Discount rates
 Sales margin or EBITDA
 Growth rates using the extrapolate cash flows beyond the period of forecast
Part (v):
As per the “IAS 36 Impairment of Assets”, it is gathered that it is a specific IFRS
standard as it requires subjective interpretation that can be implemented with respect to the
managerial requirements. In addition, it does not restrict the creative accounting. It is also
recognized from the annual report of Sai Global limited that considerable subjectivity was
associated at the time the management carried out the impairment test process (Kimbro and Xu
2016). It can also be evidenced that the allocation of goodwill to cash generating units along with
recoverable amount computation while there is a lack of active prices regarding goodwill subject
to the discretion.

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Part (vi):
After critical analysis, it is gathered that the complex or confessing aspect of impairment
is associated with the impairment indication. Even though such indications just focus on the
internal as well as external signs concerning the assets impairment, the frequency of conducting
such test for goodwill along with intangible assets just focus on the management’s discretion
(Bond, Govendir and Wells 2016). For this reason, there is a chance that the management might
carry out test opportunistically in case there is a difference in value.
Part (vii):
It is elucidated that, impairment loss can be observed as certain variance within an asset’s
recoverable amount along with an assets carrying amount. The recoverable asset is higher than
the fair asset value subtracted from the value-in-use and disposal cost (Dye, Glover and Sunder
2014). Fair value is estimated by the asset within the active market or the sales agreement within
which the asset trading is conducted or accessibility of important information in disclosing
amount at which the company can sell its assets. In contrast, the value-in-use is deemed as
present value related with future cash inflows that are anticipated to be gathered from cost of
goods unit or asset as per IAS 36 (Khokan Bepari, Rahman and Taher Mollik 2014).
Part (viii):
In alignment with the IFRS 113 standard, ascertainment of fair value is conducted through
below points:
 Sales agreement
 Asset value within active market within the asset trading is conducted

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 Existence of quality information for revealing the amount at which the company might
sell its assets
For this reason, the fair value can be elucidated as selling price that is considered on the parts
of both the seller and buyer through anticipating that the parties have conducted a free
transaction. Numerous investments are deemed to have a fair value that is estimated on the
behalf of the market within which trading of security is done (Gimbar, Hansen and Ozlanski
2016). In addition, fair value indicates the asset along with the liabilities value of a company
while the annual report of the subsidiary company remains consolidated with a parent company.
For example, of the shares of a company is trading within an exchange, the players within the
market offers a bid through asking price of that share. In this condition, the investors might
consider selling shares to the leader in the market at a bid price at the time of acquiring the
shares from the market player within the ask price. Therefore it can be inferred that exchange can
serve as the most trusted ascertaining technique regarding shares fair value estimation (Jorissen
et al. 2014).
Part B:
Part (i):
More than 50% of the companies employing IFRS or US GAAP are greatly impacted
because of certain changes within accounting. As per the present status, the companies within
IFRS or US GAAP have leased assets along with societies that amount to around $3.3 million,
out of which more than 85% is not disclosed within the financial position statement as they are
treated as part of operating leases (Mora and Walker 2015). For compensating the same, the
investors are deemed to contain certain projections that are incomparable, inconsistent as well as

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inadequate. Therefore, it is evidenced that the previous standard of accounting failed in
explaining the economic actuality.
Part (ii):
In consideration to previous accounting standards, a lot of companies are reported to be
85% of their leases that realizes the amount within the operating leases and it did not signify the
ones mentioned within the company’s financial position statement. Even if the operating leases
are not recorded within the financial position statement there has been certain generation of
actual liabilities (Pacter 2014). While at the time of financial crisis there are certain retail
companies that turned out to be bankrupt as they failed to adjust the updated economic reality in
a better manner. In addition, the company had considerable amount of commitments in
accordance with long term operating leases and their financial position statement is observed to
be lean drastically.
Part (iii):
The previous accounting system is accordance with the lease might result in lack of
comparability. The industry in which the company operates accounts for a great amount of leases
in the operating leases. Along with that the record is not prepared under the financial position
statement of the company (Wen and Moehrle 2015). For this reason, as the company is involved
in leasing all its products that is not identical to its competitors acquiring all its products.
Conversely, the financial obligations of the two types of companies are not that identical. This
also indicates that there is a lack of level playing field within the company. With emergence of a
new standard, all such leases might be responsible for reforming the assets along with lessees
that might record them in the liability form. For this reason, it is anticipated that such type of
issue might get resolved.

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Part (iv):
Certain changes within accounting standard are likely to have an impact on more than
half of listed organizations and they are deemed to be famous in the companies. The major cause
behind this is that such changes might result in controversies and might lead to warning impacts
in consideration to negative economic situations and expenses associated with the variations
within the system. In addition these alterations might have increased commercial impacts (Yao,
Percy and Hu 2015).
Part (v):
In consideration to new standard of accounting, it is gathered that most of the companies
are treating operating leases as an aspect of off-balance sheet aspects. For this reason, the
investors along with financial statement users do not attain an efficient insight of the company’s
financial situation (Sai Global limited. 2018). This restricts the company in contrasting leasing
assets with the purchasing assets of the company. Moreover, this new standard is anticipated to
update IFRS 16 and this is estimated that it might greatly outweigh the expenses that might result
in highly informed decisions associated with investment. Ii can also be indicated that the lease
against the decisions regarding purchases in a better manner on the behalf of the management.

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References:
Amel-Zadeh, A., Faasse, J., Li, K. and Meeks, G., 2016. Stewardship and Value Relevance in
Accounting for the Depletion of Purchased Goodwill.
Benson, K., Clarkson, P.M., Smith, T. and Tutticci, I., 2015. A review of accounting research in
the Asia Pacific region. Australian Journal of Management, 40(1), pp.36-88.
Bepari, M.K. and Mollik, A.T., 2015. Effect of audit quality and accounting and finance
backgrounds of audit committee members on firms’ compliance with IFRS for goodwill
impairment testing. Journal of Applied Accounting Research, 16(2), pp.196-220.
Bond, D., Govendir, B. and Wells, P., 2016. An evaluation of asset impairments by Australian
firms and whether they were impacted by AASB 136. Accounting & Finance, 56(1), pp.259-288.
Dye, R.A., Glover, J.C. and Sunder, S., 2014. Financial engineering and the arms race between
accounting standard setters and preparers. Accounting Horizons, 29(2), pp.265-295.
Gimbar, C., Hansen, B. and Ozlanski, M.E., 2016. The effects of critical audit matter paragraphs
and accounting standard precision on auditor liability. The Accounting Review, 91(6), pp.1629-
1646.
Jorissen, A., Lybaert, N., Orens, R. and Van Der Tas, L., 2014. Constituents’ Participation in the
IASC/IASB’s due Process of International Accounting Standard Setting: A Longitudinal
Analysis. In Accounting and Regulation (pp. 79-110). Springer New York.
Jorissen, A., Lybaert, N., Orens, R. and Van Der Tas, L., 2014. Corporate participation in the due
process of international accounting standard setting: An analysis of antecedents.

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Khokan Bepari, M., F. Rahman, S. and Taher Mollik, A., 2014. Firms' compliance with the
disclosure requirements of IFRS for goodwill impairment testing: Effect of the global financial
crisis and other firm characteristics. Journal of Accounting & Organizational Change, 10(1),
pp.116-149.
Kimbro, M.B. and Xu, D., 2016. The accounting treatment of goodwill, idiosyncratic risk, and
market pricing. Journal of Accounting, Auditing & Finance, 31(3), pp.365-387.
M Carlin, T., Finch, N. and Manh Tran, D., 2014. IFRS compliance in the year of the pig: Hong
Kong impairment testing. Journal of Economics and Development, 16(1), p.23.
Mora, A. and Walker, M., 2015. The implications of research on accounting conservatism for
accounting standard setting. Accounting and Business Research, 45(5), pp.620-650.
Pacter, P., 2014. Global accounting standards-from vision to reality. The CPA Journal, 84(1),
p.6.
Sai Global limited., 2018. [online] Available at: http:// Sai Global
limited.au/investor-centre/reports-presentations-and-resources/annual-reports/ [Accessed 9 Jan.
2018].
Wen, H.J. and Moehrle, S.R., 2015. Accounting for goodwill: A literature review and analysis.
Yao, D.F.T., Percy, M. and Hu, F., 2015. Fair value accounting for non-current assets and audit
fees: Evidence from Australian companies. Journal of Contemporary Accounting &
Economics, 11(1), pp.31-45.

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