IFRS Goodwill Accounting and Reporting

This assignment delves into the complexities of International Financial Reporting Standards (IFRS) related to goodwill accounting and reporting. It requires an analysis of various aspects, including compliance with disclosure requirements, the effectiveness of impairment testing procedures, and potential challenges faced by companies in applying IFRS guidelines. The analysis should draw upon relevant academic literature and case studies to provide a comprehensive understanding of the topic.

Running head: ADVANCE FINANCE IMPAIRMENT
ADVANCE FINANCE IMPAIRMENT
Name of the student
Name of the university
Author Note

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Table of Contents
Assessment task Part A....................................................................................................................3
(i) Assets tested for impairment.............................................................................................3
(ii) Method of conducting impairment test.............................................................................4
(iii) Impairment expenditures...................................................................................................5
(iv) Assumptions and estimates used by the company for conducting impairment test..........6
(v) Subjectivity involved in the process of impairment testing..............................................7
(vi) Interesting, surprising, difficult or confusing part to understand impairment testing.......7
(vii) New insights regarding conducting the impairment.........................................................8
(viii) Fair value measurement.................................................................................................8
Assessment task Part B....................................................................................................................9
(i) Reason why the former accounting standards does not reflect the economic reality.......9
(ii) Reasons why under the previous accounting standards the lease liabilities of the
reporting entities in the balance sheet were 66 times more than the reported debts under the
balance sheet................................................................................................................................9
(iii) Reasons why the Chairperson of IASB is in the view that under the previous accounting
standard no level playing field was there among some airline entities.....................................10
(iv) Reasons why the Chairperson is in the view that the new standard will not be popular
with everyone.............................................................................................................................10

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(v) Possibilities that the new visibility with regard to all the leases will result into better
informed decision for investment..............................................................................................11
References......................................................................................................................................12

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Assessment task Part A
The main aim of this report is to focus on the disorder benchmark as well as the
assumptions, which have been implemented by the given company called, Campbell Brothers
Limited. It is a testing service providing company. At first, it was named as Campbell Brothers
and later they changed it to ALS Limited. The company is based in Australia and the company is
a soap and chemical manufacturing company that is listed under the Australian Stock exchange
(Alsglobal.com 2018). The company has its main operations in 4 major divisions, ranging from
the Industrials, Energy, Life Sciences and Minerals. It is one of the largest testing and analytical
groups of companies around the world.
While accounting for a company, the financial asset of a company is assessed at a given
reporting period in order to give evidence in case the asset is impaired. In accounting terms, an
asset is considered impaired or disordered during the time when the evidences that have been
earlier collected expresses that several events that have taken place in the course of business is
negatively influencing the cash flow values for the future. In such cases, definite impairment
charges are required to be taken and the loss needs are to be calculated (AmirALSani, Iatridis
and Pope 2013). An impairment loss is with respect to the financial or non-financial assets that is
measured at an amortized cost. The amortized cost is the contrast in between the present value of
the asset that is reckoned, and the carrying cost. However, there are certain assets that are
impaired individually, and certain assets are impaired in groups.
(i) Assets that are tested for impairment
As witnessed from the annual reports of the company for the year ended as on 31 March
2016.

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 Goodwill as well as the other non-financial assets are tested for the impairment cases and
such kind of tests could take place for more than a year in case of occurrence of few
events that specify certain circumstances for which the impairment may have to be taken
place (AmirALSani, Iatridis and Pope 2013).
 Other tangible assets- Tangible assets such as the Trade receivables are also taken into
the consideration for the test of impairment.
 Plant and equipment- Plants and equipments were also taken into account for the same
test.
(ii) Ways of conducting impairment test
As it is discussed earlier, the intangible assets and goodwill are generally undertaken for
an impairment test when an event takes place in a firm, which may demonstrate that the carrying
amount of the asset is not recoverable. In other circumstances, there are certain assets that are
tested for impairment case more than once in a year if there exists a circumstance, which may
suggest so. After this, the goodwill and other assets are assigned to the unit that is cash
generating for the test (Andrews 2012). The method that is followed is extremely simple. The
assets belonging to the lower class are grouped together for which cash flows can be recognized

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separately and for the assets, which are not based on these, are grouped different. Except
goodwill, all other assets that have undergone the impairment have the chance of reversal as
according to the date at which the reporting is done.
(iii) Impairment expenditures
Following is the impairment expenses of the company for the year ended 31 March 2016-
 The intensive assets as well as the goodwill- According to the given report during the
yearly period the total cost on goodwill rise up to 265 million dollars.
 Plant property and equipment- For plant and equipment 11.1 million dollars were the
impairment charges (Carlin and Finch 2010).
 Other intangible assets- The cost for the other tangible assets was 41.5 million dollars.
Therefore, the total cost was 317.9 million dollars.

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(iv) Assumptions and estimates that are used by the company for conducting
impairment tests
The ALS Global makes various assumptions and estimates, because it is very concerned
about its financial statements as well as its future. This outcome which might be gained by the
estimates need to be equal with the actual outcomes of the organization`s results. The taken
estimates and assumptions have considerable number of risks that can affect the profitability of
the organization and lead to several problems in the material adjustments. The given estimates
need to be discloses through notes in the accounts. For the sensitivity of the market, the
recoverable amount for the assets like goodwill needs to be taken into account for the calculation
of the future cash flows as well (Carlin, Finch and Laili 2009). The recoverable amount is
deliberated for the asset’s value in use. The estimates need to be made based upon the various
policies and are revised on a daily basis.

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The important assumptions that are made for the calculation are :
 The Compound average growth rate, and,
 The Pre-tax discount rate
(v) Subjectivity that is involved in the process of impairment testing
As per the rule of IAS 36 on the Impairment of assets, it is concluded that it is a classic
standard in the IFRS. Nevertheless, it is subject to interpretation and it may differ as per the
managerial requirement, and could give rise to creativity (Rennekamp, Rupar and Seybert 2014).
The annual report of the Campbell brothers consists of certain amount of relativity and
subjectivity in a way in which the impairment test is conducted in the organization (Cotter 2012).
The management team had the opportunity to exploit their discretion and they carried the test for
impairment for several assets depending on their opportunities. This fact can be proved with the
help of the factors, which the particular allocation of goodwill and other assets.
(vi) Interesting, surprising, difficult or confusing part to understand impairment
testing
It could be said after analyzing the annual reports of ALS Global that the most confusing
part in this process is the initiation and the induction of impairment. As stated previously the
induction of impairment depends on the internal as well as external situations and events and

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with the same, on the frequency of the test is depending completely on the discretion of the
management (Fitó, Moya and Orgaz 2013). Due to this fact, in the discretion of the management,
there might be the chances that the impairment that are generally undertaken, is either subjective
or many depend on the choice of the management. Hence, as stated above there exists chances
that the management might carry out the test depending on these opportunities that are available
and utilized the impairment option when there is a slump in the value of the given asset.
(vii) New insights concerning conducting of the impairment tests
The impairment loss can be referred to as the difference between carrying amount of the
given asset and recoverable amount of the asset. When the recoverable amount of the asset in
cases where the value in use comes into picture, is higher than it may be in the case where the
value of the asset is decreased to the disposable cost (Lee and Hooy 2013). The fair value of an
asset is determined through the sales agreement or the value of the asset that has been taken from
the market where the particular asset is usual, traded. In other cases, the value as per the rule of
IAS 36, can be described as the present value of the cash flows that might take place in future
from the asset.
(viii) Fair value measurement
According to the new IFRS 13, the fair value of an asset is determined through-
 The sales agreement.
 The value of the asset in the market where it is traded (Ifrs.org. 2018).

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Assessment task Part B
(i) The reason why the former accounting standards does not reflect the economic
reality
It is believed that about every one out of two companies that make the use of US GAAP
or IFRS in its business have been affected by the various different changes and alterations, which
have taken place in a given year. According to today’s scenario, the companies who are
registered under US GAAP or IFRS have near about 3.3 trillion dollars worth leased assets and
other commitments. Out of these, near about two-third of the total data is not reported in the
balance sheet. This is due to the fact that, they are often treated as operating leases ( Jennings and
Marques 2013). In order to compensate such loss the investors normally include those estimates
that are just a prediction. These are incomparable and inaccurate computations. Therefore, it is
often reflected that the accounting standards that were used before, did not reflect the economic
reality.
(ii) Reasons why under the previous accounting standards the lease liabilities of the
reporting entities in the balance sheet were 66 times more than the reported
debts under the balance sheet
When the previous accounting standard was in use nearly 85 percent of the companies put
their leases amount under the operating leases instead of balance sheet. While these operating
leases were not recorded under the given balance sheet, they were able to create liabilities, which
were true (loans, retirement and education 2018). Hence, when financial crises will occur, there
were certain companies that were not able to adapt to the new systems and hence they went on a

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bankrupt. For this reason, the lease liabilities of the reporting entities in the balance sheet were
66 times greater than the reported debts that are under the balance sheet
(iii) Reasons behind why the Chairperson of IASB is in the view that under the
previous accounting standard no level playing field was there among some
airline entities
The main problem with the earlier accounting systems was related to comparability. For
the airline industries, most of the leases are treated as the operating leases and therefore they are
not recorded in the balance sheet. Hence, due to this reason, it is often said that the level of
playing field does not exist among the given airline companies. When the new given standards
will be introduced, it is supposed that such types of problems will not be there as all the given
eases will be taken as assets and the given leases will account as the liabilities.
(iv) Reasons why the Chairperson is in the view that the new standard will not be
popular with everyone
Any new change that takes place in the firm has an impact on the overall business of the
company. Hence, the given companies need to be careful enough and be prepared to make the
given accounting changes in their given income statement and also to the balance sheets. Apart
from the visible impacts, it is also believed that there will be certain contractual arrangements as
well as banking policies associated with the statements of the country (Md Khokan , Rahman
and Mollik 2014). These are normally related with the aspects of human resource and may
change the overall structure of the bonus payment and the other relevant ratios.

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(v) Possibilities that the new visibility with regard to all the leases will result into
better informed decision for investment as well as the company
The blessing in disguise in terms of the new accounting standard is that the companies all
over the world will provide more transparency in their accounting statements after this
implementation. This transparency shall result in better information for the investors who plan to
invest their savings in the different shares of the company (Ramanna and Watts 2012). With the
earlier accounting standard that are in use, the companies used to keep their operating leases
under their income statement and this has made it impossible for the investors to compare.
Therefore, when the new standard will upgrade to the rule of IFRS 16, the investors will then be
able to take better decisions for their respective company.

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References
Alsglobal.com ,2018. ALS. [online] Alsglobal.com. Available at:
https://www.alsglobal.com/-/media/als/resources/myals/.../2016-annual-report.pdf [Accessed 25
Jan. 2018].
AmirALSani, H., Iatridis, G.E. and Pope, P.F. ,2013. Accounting for asset impairment. London:
Cass Business School.
AmirALSani, H., Iatridis, G.E. and Pope, P.F. ,2013. Accounting for asset impairment: a test for
IFRS compliance across Europe. Centre for Financial Analysis and Reporting Research
(CeFARR).
Andrews, R. ,2012. Fair Value, earnings management and asset impairment: The impact of a
change in the regulatory environment. Procedia Economics and Finance, 2, pp.16-25.
Carlin, T.M. and Finch, N. ,2010. Resisting compliance with IFRS goodwill accounting and
reporting disclosures evidence from Australia, Journal of Accounting and Organizational
Change, Vol. 6 No. 2, pp. 260-280. [Google Scholar] [Link] [Infotrieve]
Carlin, T.M. and Finch, N. ,2011. Goodwill impairment testing under IFRS: a false impossible
shore?, Pacific Accounting Review, Vol. 23 No. 3, pp. 368-392. [Google Scholar] [Link]
[Infotrieve]
Carlin, T.M., Finch, N. and Laili, N.H. ,2009. Goodwill accounting in Malaysia and the
transition to IFRS – a compliance assessment of large first year adopters, Journal of Financial
Reporting and Accounting, Vol. 7 No. 1, pp. 75-104. [Google Scholar] [Link] [Infotrieve]

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Cotter, D. ,2012. Advanced financial reporting: A complete guide to IFRS. Financial
Times/Prentice Hall.
Fitó, M.À., Moya, S. and Orgaz, N. ,2013. Considering the effects of operating lease
capitalization on key financial ratios. Spanish Journal of Finance and Accounting/Revista
Española de Financiación y Contabilidad, 42(159), pp.341-369.
Ifrs.org. ,2018. IFRS. [online] Available at: http://www.ifrs.org/ [Accessed 25 Jan. 2018].
Jennings, R. and Marques, A. ,2013. Amortized cost for operating lease assets. Accounting
Horizons, 27(1), pp.51-74.
Lee, C.H. and Hooy, C.W. ,2013. Determinants of systematic financial risk exposures of airlines
in North America, Europe and Asia. Journal of Air Transport Management, 24, pp.31-35.
loans, H., retirement, S., and education, N. ,2018. Bank Accounts, Super, Insurance and Home
Loans - AMP. Amp.com.au. Retrieved 25 January 2018, from https://www.amp.com.au/
Marshall, D. ,2016. Accounting: What the numbers mean. McGraw-Hill Higher Education.
Md Khokan Bepari, Sheikh F. Rahman and Abu Taher Mollik. ,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 and Organizational
Change, Vol. 10 Issue: 1, pp.116149, https://doi.org/10.1108/JAOC-02-2011-0008
Ramanna, K. and Watts, R.L. ,2012. Evidence on the use of unverifiable estimates in required
goodwill impairment. Review of Accounting Studies, 17(4), pp.749-780.

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Rennekamp, K., Rupar, K.K. and Seybert, N. ,2014. Impaired judgment: The effects of asset
impairment reversibility and cognitive dissonance on future investment. The Accounting
Review, 90(2), pp.739-759.