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Goodwill Impairment Under SFAS No. 142: An Examination of Management Reporting Decisions
Feng Gu,
State University of New York At Buffalo
ABSTRACT. This study examines management reporting decisions concerning goodwill impairment under FAS 142. We find that the discounted cash flows method is the most commonly used valuation technique. Firms are more likely to use this technique when other valuation techniques are more difficult to implement. We find that firms are more likely to outsource fair value analysis to valuation specialists when their own auditors are less resourceful and when firms are more able to afford the service. The quality of disclosure about the key inputs of discounted cash flows analysis is positively associated with the amount of goodwill and goodwill impairment and is higher for larger firms, firms with lower analyst following, and R&D firm. We also find that management is more likely to attribute goodwill impairment to firm-specific and internal factors when the impairment is larger in size, affects more segments, and has a more adverse effect on profitability.
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