Discretionary Impairments of Finite and Indefinite Intangible Assets

SYNOPSIS

Motivated by the debate on how post-acquisition accounting should treat different types of intangibles, particularly the choice between amortization and impairment versus impairment-only approaches, we use hand-collected data on acquired intangible assets and their impairments to examine the determinants of impairments of finite and indefinite intangible assets and goodwill. Impairments of indefinite-lived intangibles and goodwill are more strongly associated with reporting-related conditions than are impairments of finite-lived intangibles, which also exhibit modest associations with economic impairment indicators. Moreover, internal governance mechanisms moderate the relation between impairment pressure and recognized impairments for indefinite-lived intangibles and goodwill, but much less so for finite-lived intangibles, consistent with greater scope for discretion under the impairment-only regime. Our results are relevant for policymakers considering proposals to subsume intangible assets into goodwill and modify impairment test procedures.

Data Availability: Data are available from the public sources cited in the text.