Goodwill Impairment An Assessment of Disclosure Quality and Compliance Levels by Large Listed Australian Firms Tyrone M. Carlin Nigel Finch Walker, 1938). Some, apparently exasperated with the slipperiness of goodwill as a construct thought it ought to be expunged from the financial statements as soon as it had come into existence. Chambers supported this approach, objecting to goodwills right to a place on the balance sheet by reason of its lack of “severability” and (to his eyes) lack of capacity to contribute to what he termed the “adaptability of the firm” (Chambers, 1966, p.218). Miller would also have consigned goodwill to immediate writedown. Such treatment, he argued, was the least worst means of resolving the fate of an illegitimate creature born of a wholly inadequate framework for the aggregation of assets (Miller, 1973). Gynther, on the other hand, thought it absurd to engage in rituals of mandatory amortisation and writedown of goodwill taking the view that it could (and ought) as confidently assert its membership of the on balance sheet asset club as other less colourful actors. Optimistic about rapid advancements in measurement techniques, he saw no objection to the recognition (via a continuous revaluation regime) even of that much dreaded sub-species, internally generated goodwill (Gynther, 1969). Given the maelstrom evident in the conceptual sphere, it is perhaps unsurprising that considerable turbulence has long been clearly evident in the world of practice. Early editions of Montgomerys Auditing2 finger goodwill as a favoured tool of watered stock fraudsters and their fellow travellers, suggesting widespread licentiousness including the capitalisation of operating losses to goodwill on the spurious theory that these had been incurred for the future economic betterment of the enterprise in question. Add a (dirty) pool, write off against reserves, incant extraordinary expense, invert the sum of the years digits, misallocate purchase consideration to identifiable intangibles, about face and channel away from these back to goodwill, trim cash generating unit populations, massage growth assumptions, compress discount rates. Round and round the cauldron go (Gibson Wines Day Micallef Lonergan, 2006). Yet in matters pertaining to the regulation of financial reporting, hope evidently springs eternal. Whatever had transpired historically, a clear break with the past was made when it became a requirement at law that International Financial Reporting Standards (IFRS) would in Australia be the required basis for the preparation of financial statements3 for all reporting periods beginning on or after January 1 2005. In many instances the transition to IFRS resulted in very little actual change. This was not so in the case of the new rules pertaining to goodwill accounting, which differed radically from their predecessors. Consequently, informed by the turbulent history of goodwill accounting practice and theory, it is the objective of this paper to take the opportunity afforded by the emergence of the first substantial sample of financial statements prepared by large listed Australian companies under IFRS to peer into this brave (and complex) new domain with a view to forming an impression of its qualities. In pursuing this objective, the remainder of this paper is structured as follows. Section 2 provides a brief review of key developments in the regulation of goodwill accounting and reporting in Australia to date. Section 3 sets out details of the data sample and research methodology employed. Section 4 consists of a discussion of the results of the study, while section 5 contains some conclusions and suggests some implications of this study for practice and potential further research. 2. OVERVIEW OF GOODWILL REPORTING ARRANGEMENTS IN AUSTRALIA Although goodwill had figured as an element of financial reports in Australia for an extended period (Standish, 1972), no reporting standard dealing with goodwill existed in the jurisdiction until the issue in March 19844 of Statement of Accounting Standards AAS 18, Accounting for Goodwill, by the Australian Society of Accountants5 jointly with the Institute of Chartered Accountants in Australia6. Prior to that time, an almost perfect regulatory vacuum surrounded financial reporting arrangements for goodwill in Australia, there being, in addition to a lack of accounting standards on the matter, no express requirements from other quarters such as stock exchange listing rules or the Companies Act. This set the Australian landscape at odds with the position in other jurisdictions, for example the United States, where pronouncements pertaining to goodwill had existed for several decades for example, chapter 5 of Accounting Research Bulletin (ARB) 43, issued in 1953, or APB 17, issued in 1970. Consequently, prior to the advent of regulation in Australia, a melange of conflicting