Impairment of goodwill on transition to IFRS 3: the Portuguese case

Abstract

From 2005 on, all companies listed in European stock exchange are obliged to present their consolidated financial statements based on IAS/IFRS as adopted by the EC. Under IFRS, namely IFRS 3 – Business Combinations, goodwill is no longer systematically amortized, but instead is tested annually for impaimenr losses.
Our study aims at analyzing goodwill accounting treatment in the transition period from national GAAP regimes to IAS/IFRS, using the consolidated financial statements of Lisbon Euronext listed companies. Firstly, we analyze the initial and subsequent accounting treatment of goodwill, followed by a quantification of the impact of transition adjustments that took place in companies’ financial position and performance.
Secondly, we identify the type of information displayed in the notes to the financial statements, assessing the compliance with IAS/IFRS dispositions concerning goodwill disclosing and eventual impairment losses. Finally, we look for empirical evidence of goodwill-based earnings manipulation during the transition period, using specifically big bath practices.