The Fraud Examiner
Where Has All the Goodwill Gone?
By Gerard Zack, CFE, CPA, CIA
In 1965 Ray Davies of The Kinks asked, “Where Have all the Good Times Gone?” – a classic song that included the follow-up question, “Will this depression last for long?” Davies wasn’t alluding to the economy. He had other issues on his mind. But over the last few years many of us have asked very similar questions about our personal finances.
Decades later we’re asking, “Where has all the goodwill gone?” It must be year-end housecleaning time, because we read every day about companies writing off huge amounts of goodwill that originated from an earlier acquisition. In January alone, reported write-offs included, but were not limited to:
General Dynamics - $2 billion
ArcelorMittal - $4.3 billion
Cliffs Natural Resources, Inc. - $1 billion
Rio Tinto - $14 billion
Wherever there’s goodwill, there’s been an acquisition, since under the accounting rules it is impossible to internally develop an asset for goodwill. Goodwill represents the excess of a purchase price over the fair value of the acquired assets, less the fair value of the assumed liabilities. It’s the premium that a buyer is willing to pay for the intangible value that it perceives it will receive in connection with an acquisition. Or, as many will cynically argue, is goodwill really nothing more than a plug figure to account for the difference between what a buyer paid and the tangible assets it obtained?
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