Amortization of goodwill

GAAP differences

Now, differences between global accounting rules are shrinking.
But there are still vivid differences even in popular accounting themes.
“Amortization of Goodwill” is a good example. Major accounting rules for this topic are as following;

US GAAP
No Amortization
No reversal once impaired
IFRS
No Amortization
No reversal once impaired
J-GAAP
Amortization
No reversal once impaired

Yes, Japanese one is always unique from other global standards.

No reversal once impaired

IFRS requires reversal of impairment loss for tangible & non-tangible assets except for goodwill. (conf. Japan & US GAAP; no reversal for all fixed assets)

Why is goodwill an exception in IFRS methodology? This is because, in case impaired goodwill recovered, we are not certain whether that is coming from recovered value or newly generated value to the goodwill.

(Please note that generating goodwill on balance sheet is prohibited.)

It could be said IFRS admit values of goodwill are potentially “generatable” (but not recordable on the balance sheet).

To be amortized or not to be

From my experience of “real” business, contents of goodwill change. In other words, values included in goodwill are replaced by new one(s) every day.

See Gucci, Coach. The values you feel should not be exactly same as ones of 20 years ago.

Of course, you may think values of some brands are very stable (Hermes, LV, etc.).

But usually, certain values of brands gradually vanish, and smart brand owners add new values to the brand day by day.

Japanese one might be the standard

Investors may prefer the Japanese policy in this regard because periodical amortization lightens future burden that comes from loss of impairment on the income statement.

Actually, IFRS has started to consider compulsory amortization of goodwill.

Dear world, welcome to Japan!!

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