-
Business consulting services
Our business consulting services can help you improve your operational performance and productivity, adding value throughout your growth life cycle.
-
Business process solutions
We can help you identify, understand and manage potential risks to safeguard your business and comply with regulatory requirements.
-
Business risk services
The relationship between a company and its auditor has changed. Organisations must understand and manage risk and seek an appropriate balance between risk and opportunities.
-
Cybersecurity
As organisations become increasingly dependent on digital technology, the opportunities for cyber criminals continue to grow.
-
Forensic and investigation services
At Grant Thornton, we have a wealth of knowledge in forensic services and can support you with issues such as dispute resolution, fraud and insurance claims.
-
Mergers and acquisitions
Globalisation and company growth ambitions are driving an increase in M&A activity worldwide. We work with entrepreneurial businesses in the mid-market to help them assess the true commercial potential of their planned acquisition and understand how the purchase might serve their longer- term strategic goals.
-
Recovery and reorganisation
Workable solutions to maximise your value and deliver sustainable recovery
-
Transactional advisory services
We can support you throughout the transaction process – helping achieve the best possible outcome at the point of the transaction and in the longer term.
-
Valuations
We provide a wide range of services to recovery and reorganisation professionals, companies and their stakeholders.
-
IFRS
The International Financial Reporting Standards (IFRS) are a set of global accounting standards developed by the International Accounting Standards Board (IASB) for the preparation of public company financial statements. At Grant Thornton, our IFRS advisers can help you navigate the complexity of financial reporting from IFRS 1 to IFRS 17 and IAS 1 to IAS 41.
-
Audit quality monitoring
Having a robust process of quality control is one of the most effective ways to guarantee we deliver high-quality services to our clients.
-
Global audit technology
We apply our global audit methodology through an integrated set of software tools known as the Voyager suite.
-
Corporate and business tax
Our trusted teams can prepare corporate tax files and ruling requests, support you with deferrals, accounting procedures and legitimate tax benefits.
-
Direct international tax
Our teams have in-depth knowledge of the relationship between domestic and international tax laws.
-
Global mobility services
Through our global organisation of member firms, we support both companies and individuals, providing insightful solutions to minimise the tax burden for both parties.
-
Indirect international tax
Using our finely tuned local knowledge, teams from our global organisation of member firms help you understand and comply with often complex and time-consuming regulations.
-
Innovation and investment incentives
Dynamic businesses must continually innovate to maintain competitiveness, evolve and grow. Valuable tax reliefs are available to support innovative activities, irrespective of your tax profile.
-
Private client services
Our solutions include dealing with emigration and tax mitigation on the income and capital growth of overseas assets.
-
Transfer pricing
The laws surrounding transfer pricing are becoming ever more complex, as tax affairs of multinational companies are facing scrutiny from media, regulators and the public
-
Tax policy
Tax policies are constantly evolving and there are a number of complex changes on the horizon that could significantly affect your business.
What is goodwill?
Goodwill is the excess of the consideration transferred (typically cash and/or stock) by the acquiring company over the fair value of the target company’s assets and liabilities acquired. Prior to that course correction in 2001, goodwill was amortised over a finite time period, sometimes as long as 40 years.
Goodwill amortisation elimination options
The elimination of goodwill amortisation was not taken lightly by the Boards. Various options were considered such as:
- Writing off all or a portion of the goodwill immediately
- Reporting goodwill as an asset that is amortised over its useful life
- Reporting goodwill as an asset that is not amortised but is reviewed for impairment
- Reporting goodwill as an asset, a portion of which is amortised and a portion of which is not amortised (a mixed approach).
An immediate write-off method was not selected as goodwill is considered an asset and an immediate write-off because it was worthless would undermine the very decision that it was an asset to be recognised. An amortisation method was no longer the preferred approach because not all goodwill was considered a wasting asset, a straight-line amortisation method did not match economic reality, and providing an option to amortise would result in financial statements that were no longer comparable for investors.
In addition, reporting a portion of goodwill as an amortisable asset was not practicable because it would be too difficult to split goodwill apart. This long-standing debate by the Boards and its stakeholders resulted in Option 3 (an asset that should not be amortised) as being the preferred approach post 2001.
However, the debate over amortisation never seemed to go away. Often times, when an entity reports a goodwill impairment which results in a large non-cash loss being reported, the entity will identify that loss specifically in their earnings releases and calls. Investors will then shrug it off as it does not affect operating cashflow. However, some stakeholders prefer the indefinite life – impairment approach as they believe an impairment indicates that management may have overpaid for an acquisition or did not derive the expected value from the acquisition. Such an impairment event would be useful for investors to know as it is a reflection on management decisions.
Those who prepare financial statements often criticise the impairment model.
Accounting for goodwill
I have been in meetings with Chief Accountants who have expressed an interest in just writing off goodwill on the acquisition date, so they don’t have to perform impairment tests subsequently and substantiate their results to their independent auditors. Other Chief Accountants have noted that may be too extreme and would have trouble explaining to their CEO why what may have been a good strategic decision resulted in an immediate loss. They would prefer returning to an amortisation approach which should alleviate the pressure of future impairment testing.
I have even come across discussions where business unit managers complained that they were being held accountable for goodwill that they did not create themselves nor could they pinpoint its origin as the acquisition occurred in periods well before they arrived in that role or to that company.
And last, some companies are so acquisitive that goodwill may be one of the largest assets on their balance sheet, and those companies would not want it expensed as it will drag down their earnings for years to come and may event transfer an equity surplus to an equity deficit.
Cracks in the goodwill accounting model
Fast forward almost twenty years and we are now seeing cracks in the goodwill accounting model that have developed in the United States. In December 2020, the FASB has tentatively decided to go back to the amortisation model for goodwill and is considering a straight-line approach for a period of no longer than ten years. This would be a significant departure from GAAP today and a divergence from IFRS where the two accounting regimes were mostly aligned. It’s amazing what a different composition of Board members can do to past decisions.
Some stakeholders saw this coming. In 2014, the FASB provided an option to private companies to amortise goodwill on a straight-line basis over 10 years. This option was extended to not-for-profit organisations in 2019. It was only a matter of time for the Board to reconsider goodwill amortisation for public companies. The FASB has yet to issue an exposure draft on returning to goodwill amortisation which means this tentative decision is not yet final GAAP.
It could still be a couple of years away as the Board will need to issue an exposure draft, receive comments, and then redeliberate before a final standard is issued. But many eyes are watching the Board’s progress and when issued as a final standard, those eyes may then turn towards the IASB to see whether the change in US GAAP will change their views under IFRS.
If you would like to discuss this topic further then please let me know, or speak to your local Grant Thornton member firm.