Do goodwill impairments affect audit opinions?Evidence from China

There has been a steady growth of goodwill impairments in the Chinese stock market since the adoption of the impairment approach in accounting.The influence of goodwill impairments on a firm’s financial position and profitability give reason to doubt its current and future performance.We examine whether auditors,as a crucial external monitor,identify the information risks of goodwill impairments and express their concerns about financial reporting quality in their audit opinions.Using a sample of firms listed on China’s Ashare market from 2007 to 2017,we test the association between goodwill impairments and the type of audit opinion received in the same financial period.Our findings are as follows.First,the probability of receiving a modified opinion increases with the amount of goodwill impairments.Second,the positive association between goodwill impairments and modified audit opinions is driven primarily by earnings management risks.Third,this positive association is more salient when auditors are industry experts and there is no auditor–client mismatch.Fourth,auditors are more sensitive to the amount of goodwill impairments than to their mere existence.Overall,we document that auditors perceive goodwill impairments as a signal of information risks and communicate their concerns to investors to avoid litigation.

Disclosure Quality in Goodwill Impairment Tests： Turkey Case

The issue of goodwill impairment has been debated in many countries throughout the world. Adoption of International Financial Reporting Standards （IFRS） introduced fundamental changes in accounting and impairment methods for goodwill. Since global stock markets went into decline in 2008, there has been much debate over the issue of goodwill impairment in the US and European stock exchange markets, especially on how large the write-downs should be. Complexity of International Accounting Standards （IAS） and IFRS focusing on goodwill and goodwill impairment techniques may lead to inconsistent compliance and varying levels of disclosure quality. The aim of this study is to analyze goodwill impairment during and after the recent financial crisis for companies listed on the Borsa Istanbul （BIST） 100 index and to assist the financial statement users in the assessment of disclosure quality under IAS 36, Paragraph 134d. Tools such as： （1） the period over which management has projected cash flows; （2） the growth rate used for cash flow projections; （3） the discount rate（s） applied to projections; and （4） methods employed to determine recoverable amount are analyzed. Insufficient disclosures on these tools are observed. The findings are of interest to researchers examining the implication of IAS 36, regulators, and policy-setters.

The potential harms of goodwill impairment avoidance: Evidence based on future performance and stock prices

The rapidly increasing volume of goodwill assets in the capital market generates potential risks due to the possibility of an untimely recognition of goodwill impairment.In this paper,we investigate the financial consequences of goodwill impairment avoidance based on firms’future performance and stock prices.Using Chinese A-share listed firms with goodwill balances,we find that avoiding goodwill impairments negatively affects a firm’s performance growth and increases its risk of a future stock price crash.These adverse effects continue for the three years following the goodwill impairment avoidance.Our results indicate that goodwill impairment avoidance has detrimental impacts on a firm’s future performance and stock price and that these impacts are persistent.Our conclusions are helpful for regulators on how to prevent the risks hidden in goodwill impairment recognition and maintain the stable development of the financial market.