An Analysis Of The Reasons For The Impairment Of Goodwill At The Right Time

At the beginning of 2019,the "thundering" event of goodwill in A-share market caused the focus of the community on the issue of goodwill impairment.Under the current impairment test,enterprises and management are given greater discretion,so it is common to withdraw goodwill impairment at the right time.Specifically,there are signs of impairment but no provision for goodwill impairment(i.e.delayed provision)or one-time provision for huge goodwill impairment(i.e.one-time provision).In this paper,we will analyze the reasons of goodwill impairment in the form of case study.First of all,this paper reviews the literature related to goodwill impairment,and summarizes the theoretical basis involved.Secondly,it describes the current situation of goodwill and goodwill impairment in the pharmaceutical industry,and analyzes the reasons of goodwill impairment in pharmaceutical enterprises.Then,this paper selects the event of goodwill impairment of Puracap and Epic Pharma.Through the analysis,it is found that there is a problem of timing provision for both impairment,that is,delayed provision and one-time provision.Further exploring the reasons,we find that:(1)The reasons for the delay in withdrawing the impairment of Puracap's goodwill are to meet the performance conditions stipulated in the equity incentive plan and to obtain the stock price fluctuation income during the employee's shareholding plan;The purpose of withdrawing the impairment of its goodwill once is to smooth the profits and maintain the steady growth trend.(2)The reason for delayed provision of goodwill impairment of Epic Pharma is to avoid adverse impact on solvency during debt contract;The apparent reason for one-time provision of goodwill impairment of Epic Pharma is that economic factors lead to a significant decline in the performance of the acquired target,but the economic factors may also be the shield of "big bath" motivation.In addition,due to the overvalued and high premium in the M & A process,there is no real excess profitability support for the virtual high goodwill.When the impairment test is carried out,the book value of the original virtual high goodwill may be withdrawn for impairment at one time.Generally speaking,the main reasons for goodwill impairment are: economicfactors,earnings management motivation and overvalued value in the M & A process.Finally,in view of the unreasonable reasons for the impairment of goodwill,such as earnings management motivation,overvalued value in the M & A process and high premium,three suggestions are put forward: enterprises should reasonably evaluate the value of M & A objectives;standard setting institutions should compress the earnings management space in the goodwill impairment criteria;regulators should advance their regulatory activities and form joint supervision.