Controversies Over Accounting for Goodwill

This is an Open Access book. The accounting treatment of goodwill has been widely debated, particularly regarding whether amortization should be reintroduced. After the IASB abolished amortization in IFRS 3 in 2004, the post-implementation review of IFRS 3 (PiR 3) was conducted from 2013 to 2015. The PiR 3 highlighted concerns that the impairment-only approach tends to cause the “too little, too late” issue, suggesting the reintroduction of amortization as one of the key primary candidates for a solution. During the process of the IASB responding to PiR 3, scandals such as the collapse of Carillion and massive goodwill write-downs by GE and Kraft Heinz reignited the debate. Critics argue that the impairment-only approach often results in “too little, too late.” Although the debate over whether goodwill should be amortized continued for the next 20 years without a resolution, the IASB halted the discussion in 2022; it now aims for a solution through disclosure, as users do not support the reintroduction of amortization. This study examines the key arguments in favor of and against goodwill amortization through an analysis of IASB and ASAF meetings, a review and analysis of prior theoretical research, a survey of prior empirical research, questionnaire- and interview-based surveys of stakeholder opinions, and original empirical research. It also explores accounting education as a potential factor influencing our findings. Through these analyses, this study highlights how differences in accounting education, jurisdictional norms, and stakeholder interests contribute to conflicting perspectives. The survey conducted in Japan reveals that preparers, users, and auditors overwhelmingly support the amortization-with-impairment approach, diverging from international trends. Empirical research using Japanese archival data shows evidence consistent with the notion that market participants often anticipate impairment losses before they are formally recognized, reinforcing concerns over the “too little, too late” issue. Moreover, goodwill accounting is not a simple dichotomy, as discussed by the accounting standards-setting body, but a complex structural issue. Furthermore, accounting education can influence stakeholder perspectives, especially those of auditors, in Japan. The study concludes that understanding these diverse viewpoints is essential for fostering meaningful dialogue on goodwill accounting reforms.