Evidence on IFRS goodwill impairment testing by Australian and New Zealand firms

Tyrone M. Carlin*, Nigel Finch

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

21 Citations (Scopus)


Purpose – This paper aims to provide evidence relating to the potential for and extent of opportunistic exercise of discretion by large Australian and New Zealand reporting entities undertaking goodwill impairment testing pursuant to the International Financial Reporting Standards (IFRS) framework. Design/methodology/approach – The research question is addressed using an empirical archival approach. Independent risk-adjusted estimates of firm discount rates are calculated for a sample of 124 Australian and New Zealand listed firms, and an analysis of variances between these rates and those adopted by sample firms undertaken for the purposes of ascertaining evidence of potential opportunism in discount rate selection. Findings – Evidence consistent with opportunism in the selection of discount rates is reported. The results suggest the existence of a bias among Australian and New Zealand firms towards the application of lower than expected discount rates. This is interpreted as evidence of the opportunistic exercise of discretion to avoid unwanted impairment losses. Practical implications – The results raise doubts as to the efficacy of the IFRS impairment testing process in practice and suggest the need for greater rigour and vigilance on the part of auditors and regulators overseeing entities reporting pursuant to IFRS. Originality/value – This is one of a limited number of empirical studies into the effect of the IFRS goodwill impairment testing regime in practice in Australia and New Zealand. The paper provides new empirical insights into the operation of the IFRS regime, in particular, the key dimension of discount rate selection by reporting entities.

Original languageEnglish
Pages (from-to)785-798
Number of pages14
JournalManagerial Finance
Issue number9
Publication statusPublished - 10 Aug 2010


  • Australia
  • Creative accounting
  • Financial reporting
  • Goodwill accounting
  • New Zealand

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