Duff & Phelps and the Canadian Financial Executives Research Foundation (CFERF) have released the inaugural 2012 Goodwill Impairment Study: Canadian Edition (the “Study”).
The Study addresses the following key topics:
- The initial impact of transition to IFRS on goodwill impairments, plus insights into what the impact may be going forward.
- Trends in aggregate goodwill impaired, and total goodwill impaired by industry over the last 5 years (2007-2011).
- The impact of goodwill impairment on stock prices.
- The results of a FEI member survey and Research Forum of senior Canadian financial executives exploring the goodwill impairment process and expectations of future impairments.
- IFRS adoption prompted an incremental $7.1 billion in goodwill impairments recognized in 2010, relative to the originally reported $1.3 billion. Of the total incremental impairments, $5.5 billion was recognized as a one-time adjustment to retained earnings (RE), while $1.6 billion was recognized as an additional 2010 income statement (IS) charge.
- The aggregate amount of goodwill impaired in calendar year 2011 by Canadian publicly traded companies was $11.0 billion, $8.9 billion (or 81%) of which was recognized by three major companies; therefore the ongoing impact of applying IAS 36 Impairment of Assets is yet to be determined.
- In general, companies that did not recognize a goodwill impairment over the 2012 study’s 2007–2011 time horizon outperformed those that recorded a goodwill impairment as well as the S&P/TSX Composite Index.