Abstract:
Purpose – This paper outlines the link between value creation, performance measurement and goodwill accounting according to IFRS and US-GAAP. Since economic goodwill is identical to the present value of future residual income, we examine the question of how accounting information gathered for impairment testing of goodwill according to IAS 36 and FAS 142 can be used for internal control purposes.
Design/methodology/approach – The paper adopts common assumptions in the literature of residual income based valuation and analytically derives a periodic performance measure of both value creation and its afterward realization based on information available from impairment testing.本文来自优,文,论-文·网原文请找腾讯324.9114
Findings – This paper shows that information required by IFRS and US-GAAP to evaluate a firms’ goodwill can be used to design a performance measurement system which provides information about both value creation and afterward realization of value.
Practical implications – From a practical perspective, we show that appropriate adjustments of the data used for impairment testing result in information which ideally fits the requirements for an optimal performance measurement system.
Originality/value – The paper presents a performance measure which provides information about the actual creation of value as well as its afterward realization in a period and therefore is superior to traditional residual income based performance measures.功能食品加工技术考试方案
Keywords Goodwill, Impairment Only Approach, Performance Measurement, Value Based Management
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1. Introduction
The impairment-only-approach to goodwill accounting requires an annual determination of the value in use of the reporting units or cash generating units of a business. IAS 36.80 and FAS 142.30 require goodwill to be allocated to cash generating units resp¬¬¬-reporting units which benefit from the business combination and which represent the lowest level within the entity at which the goodwill is monitored for internal management purposes. Obviously, there is a link between goodwill allocation and internal management. Goodwill is monitored internally in order to achieve the benefits of the acquisition that were planned for initially. As the impairment-only-approach is quite costly in its application, the question arises whether the information gathered in its process can be used for managing the success of the acquisition and controlling the performance of these units, that is, measuring and rewarding management performance.校园安全倡议书
From an economic point of view, goodwill is the surplus over a firm’s net asset value and therefore identical to the net present value of an investment. As such, goodwill is also identical to the present value of future economic rents or residual income (Ellis, 2001). Residual income is an important performance measure in value based management. As the value of goodwill is based on the present values of future residual income and so is value based management, a close link between the two exists. In the process of impairment testing, goodwill is evaluated and this valuation is verified by external auditors. As such, the resulting numbers may well be used for internal measurement and reward procedures. In this paper, we therefore analyze the question on how the information gathered for impairment testing can be used for measuring and rewarding management performance in order to meet the goals of the acquisition and preserve shareholders interests.
The main function of a performance measurement system is to provide information for managers to make economic decisions and to induce them to act in the interest of the shareholders (Demski and Feltham, 1976). Managerial decision-making not only requires forward-looking information, but also backward-looking performance measures which indicate the necessity as well as the direction of corrective action. A performance measure is used to judge the performance of a given period. It is used as an indicator of the success during that period and is compared to earlier projections in order to reveal the necessity of corrective action. Those measures are at the same time used by principals to evaluate the performance of agents (stewardship function). Managers anticipate the way they are2640
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