The Impact of Goodwill Impairment Testing on Earnings per Share

Faisal I. Alfaqih&Joel N. Morse

Abstract

One of the factors that affects the general population in their day-to-day life is share price changes. It is good to note that major accounting practices widely influence the changes in share prices. Goodwill impairment, an accounting charge reported when the fair value of a minority interest or subsidiary is lower than its carrying value, is one of the individual factors that affect the share prices and its earnings. To comply with the demands and needs of investors and regulators, there is an ongoing need to ascertain if the financial statements of a company accurately reflect its earnings and its valuation. Hence, as will be seen below, internal treasury staff and outside auditors periodically compare the balance sheet value of a unit of a company to its fair value. It is also important to note that a goodwill impairment will decrease a company’s book value.