OMXC20CAP-selskabernes regnskabsmæssige behandling af nedskrivningstest på goodwill

Patrick Alexander Dirchsen

Student thesis: Diploma thesis


This project assignment on goodwill was prepared in connection with the completion of HD Part II Financial & Management Accounting at Copenhagen Business School in the spring 2014. The project assignment concerned the accounting treatment of acquired goodwill, and the title question was the following: ”Do the annual reports of the largest Danish companies listed in the stock exchange index OMXC20CAP give satisfactory insight into their impairment tests of goodwill?”. The project assignment analysed 18 annual reports from the companies listed at OMXC20CAP. Introductorily in the project assignment was a general description of goodwill, primarily within IFRS. Goodwill fell under the category of intangible assets and could be characterised as something that contributed to generating income in the entity, but which was not measurable; for instance, an entity’s reputation, customers and business connections. Goodwill was stated as the positive difference between cost and fair value of the identifiable net assets of an acquired entity. The financial reporting standard IAS 36 related to impairment of assets, in which the rules on impairment test of goodwill were included. The most significant assumptions of an impairment test were the discount rate applied to the cash flow projections, the growth rate used to extrapolate cash flow projections, and the period over which management projected cash flows. In the empirical part of the project assignment, it was initially examined how much significance goodwill had to the largest Danish companies listed in the index OMXC20CAP. The conclusion was that goodwill had massive significance to the largest Danish companies’ financial figures, which emphasised the importance of the accounting treatment of impairment test of goodwill. Also in the empirical part of this project assignment, eight examinatory questions were asked, primarily relating to compliance of IAS 36, which in the aggregate answered the title question. The eight questions were then analysed in the 18 annual reports from the companies listed in OMXC20CAP which were part of the examination. It was found that the level of information about the impairments tests in the OMXC20CAP companies’ annual reports was of very varying quality. Thereby, the readers of the financial statements would not obtain sufficient transparency in the annual reports, and accordingly, the readers would doubt whether the measurement of goodwill was correct. It was also found that one company in the OMXC20CAP in particular did not base its impairment tests on realistic assumptions. This project assignment predominantly pointed towards the conclusion that, based on the analyses and assessments of this project assignments, the OMXC20CAP companies‘ annual reports overall did not give satisfactory insight into their impairment tests of goodwill for the readers of financial statements. The primary reasons for this conclusion were that a wide selection of the Danish companies in OMXC20CAP could be criticized for their accounting treatment of impairment tests of goodwill, and that this indicated a general trend. Also, these matters were clearly assessed to be not insignificant. The provisions of IAS 36, etc. were to be complied with by all, and there was no question of the companies’ deciding whether to observe the provisions of IAS 36 ”to a higher or lesser degree”. It was difficult to decide whether the companies’ non-compliance of the financial statement provisions was due to error, carelessness, ignorance or other, but it did seem strange considering the companies’ professional accounts departments. The conclusion of the project assignment was that, on the basis of the analyses and assessments of this project assignment, the annual reports of the largest Danish companies listed in the index OMXC20CAP overall did not give satisfactory insight into its impairments tests of goodwill to the readers of the financial statements.

EducationsGraduate Diploma in Financial and Management Accounting, (Diploma Programme) Final Thesis
Publication date2014
Number of pages100