Amortisation versus impairment of goodwill and accounting quality

In this paper there has been made a comparison between the amortisation and the impairment methods for accounting for goodwill, with regards to their associated effects on accounting
quality. Based on two qualitative characteristics of accounting information, as formulated by
the International Accounting Standards Board (IASB), the effects of the new impairment method
are examined using a value relevance and a timeliness model. The sample consists of European
companies that adopted this new method of goodwill accounting, following the required adoption
of the International Financial Reporting Standards (IFRS) in 2005. The results indicate
that impairment of goodwill is actually less value relevant than amortisation, but that it does
lead to more timely accounting information. It is concluded that the objective of the IASB in
issuing a new accounting standard is not completely met and it only partially contributes to
higher accounting quality.