Evidence That Companies Are Not Analyzing Goodwill For Impairment As Required By SFAS142
SFAS142 (2001) requires that goodwill be analyzed for impairment annually and written down if impaired. Impairment testing is complex and relies on many subjective factors. To users it is a "Black box" analysis which gives companies an unprecedented opportunity to manage earnings. For example, in 2005 some 2,724 companies with $2.4 trillion of goodwill found only 0.54% of that goodwill impaired and in 2006 some 2697 companies with $2.4 trillion of goodwill found only 0.65% of goodwill impaired. If goodwill has value, it should generate rent comparable to industry norms. A reasonableness test for impairment would be to compare returns of companies with goodwill to these norms.