Goodwill: How To Play The Magic Cube?

Whether it is the 2000 century online purchase case of AOL and Time Warner, or the global PC business of Lenovo's acquisition of IBM in 2004, or the Geely Volvo acquisition case, which had been fired up and settled at last, maintaining goodwill as if it was always a fierce battle after the merger and acquisition.

Huge Goodwill: excess profit margin or heavy burden

"Goodwill is a game between M & A enterprises and acquired companies with strong uncertainty."

China Unicom (600050, stock bar) Yang Jun, general manager of Finance Department of Guangxi branch, pointed out.

The value of goodwill is often determined by the difference between the fair value of the net assets of the enterprise after the merger price is reached by the two parties.

Therefore, many factors such as the timing of acquisition, market environment, the willingness of the two sides to merge and acquisition, and so on, have become the uncertain factors of the price of mergers and acquisitions.

Moreover, with the birth of the giant enterprises in the world and the further integration of the world market, the large-scale merger and acquisition cases are common, and the proportion of goodwill in the price of M & A is becoming higher and higher. Even in some cases, the value of goodwill has accounted for more than 90% of the M & a price.

A huge sum

According to the new accounting standards of China, impairment of goodwill is required at the end of each year after the acquisition. Once the impairment of goodwill is confirmed, it is not allowed to be pferred back to the subsequent accounting period.

The value of goodwill reflects more goodwill at that time, while asset value changes very fast.

In this regard, Dr. Hong Jinming, a graduate student of the Ministry of finance, said that there are still some uncertainties in the calculation of the impairment of goodwill in China at present. This is mainly due to the fact that goodwill can not generate cash flow independently from other assets or portfolios. When conducting impairment tests, it is usually based on asset groups or asset portfolios, while the confirmation of the assets group or assets portfolio directly affects the calculation results of the impairment of goodwill.

The new standard restricts the earnings management function of goodwill.

China's new criteria for commercial goodwill are more convenient to operate.

Not only that, many studies have found that the new standard of goodwill reduces the earnings management behavior of listed companies to a certain extent, and improves the quality of accounting information of listed companies.

The purpose of asset impairment is usually two: reducing assets' future earnings and adjusting profits.

The former considers that the impairment of assets is a decline in profitability in the future. Its purpose is to squeeze out the water of assets and reflect the true value of assets. The latter thinks that the asset impairment standard gives managers the space for policy choice, and can make provision for impairment of assets according to their own needs.

Through this statistical analysis, Hong Jin Ming found that the new guidelines prevented earnings management behavior to a certain extent, and effectively improved the quality of accounting information of listed companies.

However, "asset impairment accounting policy" gives enterprises more professional judgment space, such as the judgment of assets impairment, the identification and analysis of asset groups, etc.

This leads to the fact that there may be some problems such as too strong subjectivity and arbitrariness in the actual operation process, and in addition, it is difficult to predict future cash flows, the discount rate is difficult to choose, the net realizable value and the recoverable amount of calculation are complex, and so on, the enterprises still hold the initiative in the proportion of goodwill.

Hong Jinming said.

"The accurate valuation of goodwill has great impact on investors. It is necessary to further improve the operability of the impairment of goodwill by accounting standards, increase the disclosure of goodwill impairment valuation procedures and impairment testing methods, and it is very necessary for stakeholders to learn more about the complete procedures of the enterprise's preparation for impairment provision, and the appropriateness of the proportion and amount of the withdrawal.

Hong Jinming thinks.

Goodwill requires higher quality audit institutions.

Industry experts point out that higher quality audit institutions are needed for the reduction of corporate goodwill.

"Before the introduction of accounting standards, few enterprises in China will have to reduce the value of goodwill.

After the introduction of the new guidelines, the provision for impairment of goodwill is more operational, and a few companies begin to disclose this content in the report.

The existence of external audit force has a monitoring and promoting effect on goodwill raising and management of listed companies.

Yang Jun said.

Hong Jinming also found that in practice, the more strict management is,

Wu Shouyuan said that CPA usually puts the assurance of the quality of accounting information in the first place.

Many enterprises or firms do not do well in the recognition, measurement or impairment of goodwill. The reason is that they do not trace the origin of the goodwill, including the economy, technology, products, market and so on. If conditions change, the price of goodwill should be adjusted.