ASSET IMPAIRMENTS 3
"AssetImpairments: The Recession of 2008-2009"
Theinternational accounting standard 36 requires companies to performannually an impairment test of goodwill so as to estimate recoverableand written down values in comparison to carrying amounts. Thediscounted cash flow technique is commonly used in this case becauseit reflects all cash generating activities of the firm and focusesfuture potential income and at the same time uses the appropriategrowth rate in estimating these potential future cash flows.Recognition of goodwill impairment loss occurs when there isfinancial loss. However, the Swatch group did not record impairmentcharge for goodwill. There is increased number of disclosures onlyafter the financial crisis that affects the entire economy despiteabsence of disclosures regarding important impairment testcomponents. Royal bank, unlike other firms in the case, reviews groupgoodwill impairment annually and that for the recession is also wellupdated.
Thecomparisons of these financial footnotes show that there is a lowlevel of reliability due to high discretion levels of accountingprocesses. For instance, the adopted growth rates vary significantlythrough the firms. A few of the firms provide the information aboutthe discount rate used in determining the cash flows and most of thedisclosures are only provided for the period ending 2008, which doesnot give accurate and fair view of the previous operation of the firmhence may not be dependable. It is also shown that more disclosurecaptures the period after the crises with less information about theprevious periods. The most informative disclosure notes should showthe growth rate used in reaching the discounted future cash flows andshould also capture all possible cash flows. The notes should also bearranged in a certain order to allow for easy notice (AssetImpairments in the Recession of 2008-2009, 2008).
AssetImpairments in the Recession of 2008-2009, Case4(2008).