Værdiforringelse af goodwill i en recession

Niklas Frimand Dupont

Student thesis: Master thesis


The purpose of this thesis is to determine to which extent a recession has an impact on the numbers of impairments made on goodwill in practice, and to which extent a recession influences the parameters included in the impairment test of goodwill. I have sought to elucidate this issue by performing an analysis of how an impairment test of goodwill should be performed according to IFRS and how a recession effect the parameters included in the impairment test of goodwill. Thereafter the thesis presents an empirical study of the 16 Danish companies listed on the Copenhagen Stock Exchange with goodwill in their balance sheets. To determine the theoretical framework of the study, the thesis gives an overall introduction to IASB’s Framework and thereafter a presentation of the International Accounting Standards 36 Impairment of Assets (IAS 36). This presentation leads to an analysis of how the parameters in an impairment test of goodwill are affected by a recession. The most common method to determine whether there exists a need for impairment is by using the value in use. This thesis, and former studies, concludes that it’s the Discounted Cash Flow (DCF) method which is the most common model used in practice to determine the value in use. The DCF method consist of two essential steps respectively the cash flow and the discount rate. Both steps are affected by a recession which essentially increases the risk of impairments. The recommendation in this thesis is that the recession should be incorporated in the cash flow and not the discount rate. This is due to the fact that it’s easier to quantify the risk in the cash flow rather than the discount rate. This information is used in the empirical study. The empirical analysis is performed by examine the disclosures that the 16 companies provides in their annual report from 2007 and 2008. Furthermore the latest interim financial reporting as of September 2009 is examined. Thus the study is performed by examine annual and interim reports before and under the recession. The overall conclusion is that a recession does not have a significant impact on the number of impairments made on goodwill. Furthermore the study shows that the parameters disclosed in the annual reports have not changed significantly. This is due to the fact that most companies believe that the current recession is relatively brief. Therefore the extreme volatility has not been given too much attention when estimating the discount rate. However the empirical analysis shows a slight decline in the growth estimations. This indicates that the companies have incorporated the recession in the cash flow. The thesis underlines that without a doubt a recession makes the impairment testing more insecure than else. Therefore it’s recommended that sensitivity disclosures are more frequently used. Sensitivity disclosures will strengthen the overall objectivity of financial statements reported after IFRS.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2009
Number of pages87