Discount rates in disarray: Evidence on flawed goodwill impairment testing

Tyrone M. Carlin, Nigel Finch

Research output: Contribution to journalArticlepeer-review

34 Citations (Scopus)


Discount rate selection represents a centrally material factor impacting valuation models. Given the strong reliance on discounted cash flow modelling as a basis for determining an asset's recoverable amount, the judgement exercised by reporting entities regarding rate selection is of paramount importance in influencing the outcomes of the impairment testing process conducted under International Financial Reporting Standards (IFRS). The discretion surrounding rate selection could be used opportunistically to avoid or manage the timing of impairment losses to the detriment of transparency, comparability and decision usefulness. This study provides evidence consistent with the opportunism on the part of financial statement preparers, by demonstrating the existence of variances between independently generated risk-adjusted discount rates and those disclosed as having been used by a sample of large listed Australian companies.

Original languageEnglish
Pages (from-to)326-336
Number of pages11
JournalAustralian Accounting Review
Issue number4
Publication statusPublished - Dec 2009

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