Research On Goodwill And Its Impairment Under High M&A Premium

Benefiting from national policies,since 2014,capital market mergers and acquisitions activities have been active,and the merger cost of many mergers and acquisitions activities is much higher than the fair value of the identifiable net assets of the acquirers,resulting in a large number of goodwill.According to China's corporate accounting standards,goodwill should be tested at least at the end of each year to better reflect the actual situation of goodwill.Up to now,a number of listed companies have issued a notice that the performance is not expected,facing the risk of impairment of goodwill.On November 16,2018,in order to strengthen the supervision of the impairment of goodwill,the CSRC issued the “Accounting Supervision Risk Warning No.8 – Goodwill Impairment”,which aims to reveal the relevant accounting supervision risks in the subsequent measurement of goodwill.The impairment of goodwill arises from the recognition of large-value goodwill,and the recognition of goodwill stems from the high premium in mergers and acquisitions.Therefore,this paper starts with the root cause of goodwill recognition and studies the goodwill and its impairment under the high M&A premium.Using the case analysis method,the M&A cases with the largest impairment of goodwill in Shenzhen and Shanghai in the past five years were selected,and the research on the reasons for the formation of goodwill,the incentive for goodwill impairment,and the performance commitment compensation were studied.Firstly,based on the theoretical research of M&A premium and M&A evaluation methods,the paper analyzes the reasons for the formation of goodwill under the high M&A premium from the external environment and internal evaluation.The external environment includes national industrial policy,industry prosperity,industry status,industry scale,In terms of share-based payments,control rights,and high-yield profits,internal assessments include basic assumptions for valuation methods,benchmark data,and future cash flow projections.Secondly,in combination with the requirements of accounting standards,the analysis of the impairment of goodwill,and the study shows that the amount of goodwill in mergers and acquisitions is large,there is a clear incentive for earnings management in the provision of goodwill impairment;again,the response to goodwill designed for mergers and acquisitions is reduced.The performance compensation clause of value risk,explaining the implementation of performance compensation,and analyzing the effectiveness of the performance compensation clause,there is certain ineffectiveness due to the lack of specific risks.Finally,in order to deal with the risk of goodwill impairment,preliminary recommendations are proposed from the perspectives of enterprises,regulatory authorities,accounting standards,and small and medium-sized investors.Among them,enterprises must strengthen their front and middle management,and the supervisory level must form pre-,post-,and post-supervision supervision.The system,accounting standards before the change of goodwill impairment criteria,the application of adaptation guidelines,small and medium investors should pay attention to the impact of goodwill on indicators analysis and earnings.