Firm financial reporting behavior: Analysis of goodwill impairment

Goodwill is one of the most controversial issues in financial reporting. This topic is relevant and timely, since IASB is investigating possible improvements to the accounting for goodwill acquired in a business combination, since do not always produce useful financial information. In this study we present the evolution and current accounting treatment of goodwill. The empirical work focuses on a sample of the 100 biggest Spanish listed firms and covers a ten-year period (2008–2017). The results show that, although there are important differences between firms and industries, on average, the ratio of goodwill over total assets is 13%. Moreover, only 29.7% of companies recognize an impairment loss, and 95.8% of this loss is concentrated in top ten companies. Furthermore, we construct an index and hand-collect the information disclosed in the notes to the financial statements with the aim of providing evidence on the compliance with IAS 36 disclosure requirements on the goodwill impairment test. The study confirms that certain firm characteristics (the magnitude of goodwill and the goodwill impairment intensity) have an impact on compliance levels. In addition, the compliance level seems to have increased over time, thus indicating learning. These results contribute to the literature by increasing the knowledge about the reporting behavior of Spanish listed firms on goodwill impairment and financial information disclosed in this area.