Goodwill impairment testing according to IFRS in the United Kingdom: An empirical analysis of the discount rates used by the thirty largest FTSE 100 companies

摘要

This paper analyses the role and the methods of the determination of discount rates used for goodwill impairment testing according to IFRS. In addition to analysing the regulations laid out by the applicable IFRS, the paper displays the results of an empirical analysis of the discount rates used by the 30 largest FTSE 100 companies in the years 2008 to 2011. Additionally, the results are compared to those of a study with a similar focus conducted by Duff & Phelps in 2011. The paper shows that it is adequate to use the value-in-use in determining the recoverable amount and that the grossing-up method for transferring the post-tax WACC into a pre-tax rate - which most of the companies use in practice - is not adequate. According to the empirical analysis, the average discount rates used have remained comparatively stable between 2008 and 2011. This suggests that the companies did not reflect any additional risks in the discount rate during the crisis. The study also shows that disclosures regarding impairment testing lack detailed information.