The evolution of goodwill accounting in Maltese listed companies : an analysis

Abstract

Purpose: This dissertation is set out to deliver a detailed view on the evolution of the treatment of goodwill accounting. It seeks to provide a detailed analysis of the process which brought about the current treatment of goodwill prescribed by IFRS 3 and why this was considered by the standard setting body to be the best way forward. This dissertation also seeks to understand whether the practitioners agree with the decisions made by the IASB. Furthermore, it seeks to analyse whether the current method should be subject to changes in order to improve the treatment of goodwill or whether it should be overhauled completely. Design: The methodology used in order to tackle this concept involved semi structured interviews conducted with different accounting professionals within the Maltese financial market. These included a mix of auditors and practitioners who apply IFRS3 and other relevant standards in practice. The blend interview mix of auditors and practitioners made it possible to view the accounting concept from two sides of the same coin in order to gain a more comprehensive understanding of current concepts. Given the subject matter, it was deemed beneficial to drive this analysis through the collation of qualitative led data. Findings: The results emerging from this analysis provided mixed views insofar as the decisions taken by the IASB relating to the treatment of goodwill. While the majority agreed that the different treatment implemented via IFRS3 was a welcomed step forward, the remainder were hesitant in accepting that the new treatment was in effect superior. The guidance issued by the IASB in relation to IFRS 3 and its other relevant standards was not considered to be the origin of the drawbacks brought about with it. However, it was noted that the IASB was found to be lacking when it comes to practical and specific guidance on the subject matter. The study also found that while the majority agreed with the introduction of IFRS 3, there was still room for improvement with regards to this method as there were quite a number of drawbacks attributed to the current prescribed methodology. Those not in agreement with the steps taken by the IASB were in effect in favour of going back to the previous treatment method. Conclusion: This dissertation shed light on the fact that 15 years after the introduction of the first phase of IFRS 3, there were still mixed views on the treatment of goodwill in Malta. An amendment either by improving the treatment or using an alternative method needs to be implemented as the current method brings about a number of challenges. In summary, while IFRS 3 is considered by the majority to be a step in the right direction, there is still a long way to go. Value: Given the fact that there isn’t a general consensus by practitioners involved in this area with regards to the decision made by the IASB on the treatment of goodwill, this dissertation provides a highly useful reference source on the opinions of experienced practitioners and will therefore act as an indicator on the possible way forward both in terms of the IFRS as well as with regards to local GAAP.