Key facts
- Japan will retain its accounting rule requiring systematic amortization of goodwill following mergers and acquisitions.
- This contrasts with international standards where impairment losses are only recorded when goodwill is permanently reduced.
- The decision stems from concerns that adopting the international model could lead to sudden, significant impairment losses.
- Japanese companies must write off goodwill over a set period, potentially lowering reported profits and complicating international comparisons.
- A Financial Services Agency official noted the current rule allows gradual recognition of M&A overpayments but penalizes earnings relative to overseas rivals.
Japan's accounting standards body has decided to maintain its current rules on regularly writing down goodwill from mergers and acquisitions, citing concerns about the risk of significant impairment losses during economic downturns. This decision positions Japan as a global outlier, as most other major economies follow international standards that only recognize impairment losses when goodwill is deemed permanently reduced.
The move to retain goodwill amortization means Japanese companies will continue to systematically write off goodwill over a set period, a practice that can lead to lower reported profits and complicate direct comparisons with foreign companies. Market participants expressed concern that a shift to the international impairment-only model could result in sudden, substantial impairment charges, negatively impacting earnings and share prices.