On Translating Goodwill

Abstract

The IASB’s plans to reform accounting for goodwill prompt this paper’s discussion of the translation of the signifier ‘goodwill’ (and the related terms: depreciation, amortisation and impairment). As a translation problem, this is unusually interesting because there are at least three different types of goodwill but all with the same signifier in English. The paper begins by noting the difficulties which biblical translators have had with ‘goodwill’. It then outlines the different types of accounting goodwill, recording the many terms used in eight languages. This includes a study of national regulations and the specific problems of translating IFRS. The discussion is extended to include the approaches in different languages about whether or not to distinguish depreciation from amortisation and how to translate ‘impairment’. Implications for researchers and standard-setters are drawn. This includes the need for terms which are accurately defined and which have been chosen with an eye on potential translations problems.

Keywords:

• goodwill
• translation
• IFRS
• international accounting
• amortisation
• impairment

Acknowledgements

The author is grateful for comments on an earlier draft from David Alexander, Véronique Blum, Arjan Brouwer, Jane Davison, Elena Giovannoni, Niclas Hellman, Isabel Lourenço, Christopher Napier, Jordi Perramon, Chiara Saccon, Raquel Sarquis, Christian Stadler, Rika Suzuki, Ann Tarca, Sebastian Tideman, Stephen Zeff and the editor (Araceli Mora) and anonymous reviewers.

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1 The Greek is: ἐπὶ γῆς ϵἰρήνη ἐν ἀνθρώποις ϵὐδοκίας. For the translations, see: https://biblehub.com/interlinear/luke/2.htm (accessed 25 December 2020).

2 ‘Y en la tierra paz a los hombres de buena voluntad’, according to the Conferencia Episcopal Española (https://conferenciaepiscopal.es/biblia/lucas/#cap2, accessed on 29.12.2020).

3 https://biblehub.com/nkjv/luke/2.htm#footnotes (accessed 14.4.2021).

4 For example, the US Tax Code (compiled at various dates) has nine occurrences of ‘good will’ and seven of ‘goodwill’ (https://intltax.typepad.com/intltax_blog/2011/03/should-goodwill-be-one-word-or-two-words.html (accessed 14.4.2021)).

5 Of course, there is still much estimation in the measurement of purchased goodwill, but at least there is a total purchase price to allocate.

6 That is, it is measured at the remaining cost after deducting the fair value of the identifiable net asset acquired (IFRS 3, para. 32). Other methods would be possible (e.g. IFRS 3, para.s BC 328-336), but consideration of this is beyond the scope of this note.

7 See the definition of ‘business’ in IFRS 3, Appendix A.

8 This was discussed in detail by the former UK standard, FRS 10, Appendix V.

9 Einkommensteuergesetz, Article 3, §7.

10 CTA, 2009, S.882.

11 That is, the consolidated balance sheet will contain any type (i) goodwill that is in the parent’s or in any of the subsidiaries’ balance sheets.

12 I have not done a systematic survey of reports, but I give two French examples here from widely-spread dates. In the report of Castorama S.A. for 1997 (under French GAAP), ‘purchased business goodwill’ (a translation of ‘fonds commercial’) is shown under intangible assets (Note 3) whereas consolidation goodwill is shown as a separate balance sheet item (Note 4). In the 2010 report of LVMH S.A. (under IFRS), ‘brands and goodwill’ are shown under intangibles (Note 1.8) but consolidation goodwill is shown separately (Note 1.9).

13 The problem was investigated in detail by Nobes and Norton (1996).

14 Derived from 'avviare': to put into motion (https://www.etimo.it/?term=avviare&find=Cerca; accessed 28.1.2021).

15 This is what remains of the écart de première consolidation after it has been adjusted for the écart d’évaluation and the fonds de commerce (see below).

16 This was the case in Germany, for example (Beeny, 1975, p. 29/30). There were various terms for goodwill, including ‘Konsolidierungsausgleichsposten’ (consolidation adjustment item).

17 Non-entity-purchase goodwill is regulated by the Companies Act, and entity-purchase goodwill by the Accounting Standard for Business Combinations, para. 32.

18 Similarly, the Japanese translation of IFRS 3 uses ‘Noren’ for goodwill.

19 However, Italian law is unusual in also requiring the use of IFRS for the unconsolidated statements of listed companies, whereas in other countries IFRS is either not allowed for this purpose (e.g. France) or is not required (e.g. the UK).

20 Such as droit au bail, the transfer of a rental contract.

21 Originally, the Fourth Directive on company law (e.g. in Articles 9(C)(I)(3) and 37(2)). The same words are now found in Annexe III of Directive 2013/34.

22 See, for example, Beeny (1976, p. 153) and Scheid and Walton (1992, p. 239).

23 For non-entity-purchase goodwill in Account 204 of the Cuadro de Cuentas of the Plan Contabilidad; and for entity-purchase goodwill in Article 22 of RD 1159/2010, Article 26.

24 These signifiers meaning approximately ‘mercantile credit’, ‘key to the business’ and ‘excess value’, respectively.

25 IAS 36 (Impairment of Assets) requires that goodwill should not be amortised but instead tested for impairment annually (para. 10). By contrast, IFRS for SMEs (para. 19.23) and many national GAAPs (e.g. UK and Japanese) require amortisation; and this was IFRS practice before amendments in 2004.

26 For example, in the Cambridge English Dictionary: ‘the process of losing value’ (https://dictionary.cambridge.org/dictionary/english/depreciation; accessed 28.1.2021).

27 From the Instituto de Contabilidad y Auditoria de Cuentas (http://www.icac.meh.es/Normativa/Contabilidad/Internacional/NormInterInfoFina.aspx; accessed 29.12.20). This has the same words as in the EU’s Official Journal of the European Union, 29.11.2008.

28 Such as paragraphs 55 and 75.

29 Except for ‘amortizado’ in paragraph 70, which appears to be a mistake.

30 Alternative translations include ‘scheduled’ and ‘planned’.

31 See HGB §253.

32 Paragraph 8 says that ‘An asset is impaired when its carrying amount exceeds its recoverable amount.’

33 Nobes and Stadler (2018) explain that the translators used ‘imparidade’ by mistake, confusing this imparity (unequalness) with impairment.

34 Of course, other accounting terms have vague or multiple connotations (e.g. ‘capital’) but I suggest that no other major defined IFRS term has so many distinct meanings in accounting.