Measurement of Non-controlling Interests and Goodwill Impairment: Evidence from the German Market

IFRS 3 provides two different methods for measuring non-controlling interests at the acquisition date. The existence of an accounting policy choice generally raises concerns about the comparability of financial statements. The objective of this paper is to examine the extent to which the two methods are applied and whether and how the initial measurement of goodwill affects subsequent impairment of goodwill. The sample consists of the annual reports of German listed companies for the period 2016 to 2020. First, the empirical evidence shows that fair value is rarely used by companies to measure non-controlling interests at the time of acquisition. Second, the results show that almost 70% of companies do not recognize any impairment losses during the period under study. Such practices may undermine the usefulness of financial statements from the perspective of equity investors and other users. These views are also reflected in calls for the reintroduction of goodwill amortization. In this context, the paper includes the analysis of the feedback on the Discussion Paper on Business Combinations–Disclosures, Goodwill and Impairment published by the IASB in 2020, as expressed by the European stakeholders.