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

1. Introduction

This note was written in the context of plans by the International Accounting Standards Board (IASB, 2020) to reform the accounting treatment of goodwill. However, I do not deal here with the treatment of goodwill but with the terms used for goodwill in English and in several other languages. As usual, all the IASB documentation and discussion was in English only. However, the English signifier ‘goodwill’ obscures the fact that there are several different types of goodwill, such as that internally generated, that purchased when buying a set of assets, and that purchased when buying an entity. By contrast, there are multiple signifiers for types of goodwill in some languages.

Many papers have explained the theory of translation, and others have examined the practice of translation in the context of accounting. For this reason, and because this paper is designed as a Note, I will not review that literature here. Readers can consult such papers as Baskerville and Evans (2011), Evans et al. (2015) and Kettunen (2017). However, we will need two key introductory points. First, following Saussure (1993/1910), any discussion needs to distinguish the word used in any particular language (the signifier) from the concept that the signifier is trying to convey (the signified). Secondly, even within the same language, a signifier can have different meanings in different ‘registers’. For instance, there is an everyday register and an accounting register. A signifier such as ‘depreciation’ has different meanings in the different registers.

Previous papers have investigated the translation, into English or from it, of particular expressions such as: ‘asset’ (Parker, 1994, p. 79), ‘a true and fair view’ (e.g. Rutherford, 1988; Zeff et al., 1999), ‘material’ (e.g. Baskerville & Evans, 2011, p. 45), ‘fair presentation’ and ‘income’ (Dahlgren & Nilsson, 2012), and ‘substance over form’ (Alexander et al., 2018). I am not aware of any previous study on the translation of ‘goodwill’.

Thus, this paper contributes by examining a type of translation problem which has not been looked at before in accounting: where a signifier has many distinct signifieds in the accounting register in the source language. This applies for ‘goodwill’ in English, in which International Financial Reporting Standards (IFRS) are written, and it leads to special problems for translators and for practitioners. I examine the multiple signifieds of goodwill in English, then the multiple signifiers for goodwill in four Germanic and four Latin-based languages. This range of languages is sufficient to illustrate my points about accounting, and I restrict myself to these two language groups with which most readers of this journal are likely to feel most familiar. Section 2 briefly sets the scene by noting the signifiers for ‘goodwill’ in the everyday registers of these eight languages. Section 3 examines the several types of goodwill in accounting, and it looks at their signifiers in laws and in the translations of IFRS in various languages. Section 4 progresses to signifiers for the related topics of ‘amortisation’, ‘depreciation’ and ‘impairment’. Section 5 concludes on lessons which might be used by regulators and translators.

2. In the Beginning Was the Word

Discussions of how to translate documents often begin with consideration of the Bible. Whether or not to translate it into the vernacular was a key issue in the Reformation. When the Bible is being translated, respect for the word of God leads to a preference for literal translation (Dahlgren & Nilsson, 2012, p. 43; Evans et al., 2015, p. 8). In our examination of goodwill, we can thus begin with the greetings from angels as recorded by Saint Luke: ‘ … on earth peace, good will toward men’ (Chapter 2, verse 14). Saint Luke does not tell us in which language the angels spoke (presumably the everyday language of their audience of shepherds), but the oldest versions of his record are in Greek.

My quotation above is from the English translation called ‘The Authorized Version’ (the King James Bible of 1611). However, if one wanted to be more literal, one might arrive at the quite different and much less generous: ‘on earth, peace among men with whom He is pleased’.¹ Something like this latter reading is to be found in the Revised Standard Version and in the New American Standard Bible; but the Wycliffe Bible has something different again: ‘in earth peace to men of good will’, the equivalent of which can be found elsewhere, such as in the standard Spanish version of the Bible.² Olsson (2004) discusses the translation problems of the verse, particularly focusing on the one Greek word rendered as ‘good will’, ‘of good will’ or ‘with whom He is pleased’. The variety in translation of this central piece of the gospel (the good news) is alarming. It prepares us for a discussion of the translation of ‘goodwill’ in accounting.

Readers will have noticed that the above biblical quotations have the two words ‘good will’ whereas the accounting standards have the one word ‘goodwill’. Is this significant for the purpose of this paper? I think not; but that it is a matter of the dates of the writings. For example, although the Authorized Version has ‘good will’, the New King James Version has ‘goodwill’.³ In commercial English, also, both variants have been used.⁴

However, before we leave the everyday register, let us note the signifiers in other European languages. Table 1 (column 2) shows the everyday signifiers for goodwill in four Germanic languages (English, German, Dutch and Swedish) and in four Latin-based languages (Italian, French, Spanish and Portuguese), though I look at two versions of Portuguese because they vary interestingly when we get to the accounting register. As may be seen, there are closely related signifiers within each of the two language groups.

Table 1. Signifiers for types of goodwill in two language groups.

1. Language	2. Bible^a/everyday	3. Non-entity purchase goodwill, legal term^b	4. Entity-purchase goodwill, legal term^c	5. IAS 38 (internally-generated) and IFRS 3 (purchased)^d
English	Goodwill	Goodwill	Goodwill	Goodwill
German	Wohlwollen	Geschäfts– oder Firmenwert	Geschäfts– oder Firmenwert	Geschäfts– oder Firmenwert
Dutch	welwillendheid	goodwill	goodwill	goodwill
Swedish	välvilja	(inkråms)goodwill^e	goodwill	goodwill
Italian	buona volontà	avviamento	differenza da consolidamento	avviamento
French	bonne volonté	fonds commercial	écart d’acquisition	goodwill
Spanish (Europe)	buena voluntad	fondo de comercio	fondo de comercio	fondo de comercio
Portuguese (Europe)	boa vontade	trespasse (old); goodwill (new)^f	diferença de consolidação (old); goodwill (new)^f	goodwill
Portuguese (Brazil)	boa vontade	ágio por expectativa de rentabilidade futura^g	ágio por expectativa de rentabilidade futura^g	ágio por expectativa de rentabilidade futura^g

Source: prepared by the author from laws and documents, and with advice from Véronique Blum, Isabel Lourenço, Niclas Hellman, Jordi Perramon, Chiara Saccon and Raquel Sarquis.

^a Even in one language, several different signifiers can be used. For example, other French translations of the Bible have ‘bon plaisir’ rather than ‘bonne volonté’ (see https://saintebible.com/luke/2-14.htm (accessed 11.1.2021)).

^b To take the example of France, the term is in the plan comptable, Article 214-19.

^c To take the example of France, the term is in CRC Règlement 99-02.

^d The terms in this column are from the IFRS website.

^e The Swedish version of the Fourth Directive has ‘goodwill’; but the term used in Sweden for goodwill arising on asset purchases is ‘inkråmsgoodwill’ (one meaning of ‘inkråm’ is offal or innards).

^f The old terms applied until 2009; the new term is in accounting standards (Normas Contabilísitcas e de Relato Financeiro) which are included in a law (Aviso n° 8256/2015).

^g This is the term in the accounting standards (Pronunciamento Técnico CPC) 04 and 15.

3. Goodwill in Accounting

3.1 Different Types of Accounting Goodwill

Turning to the accounting register in English, ‘goodwill’ originally had a similar meaning to its everyday meaning. That is, when one partner in a business retired, the payout comprised the value of the partner’s share of the real and net personal assets plus the accumulated goodwill of customers towards the business (Leake, 1930, p. 2). This goodwill is similar to what we now call ‘internally-generated goodwill’. It also could be considered to be the future excess above a reasonable rate of return (Garcia et al., 2018, p. 322; Seetharaman et al., 2004, p. 133). In the context of buying into a partnership, goodwill might be paid for by the incoming partner (Dicksee, 1932, p. 60). Courtis (1983) provides an extensive review of British writings and law cases on goodwill from the nineteenth century onwards.

In current accounting practice (for example, under IAS 38, Intangible Assets, para. 48), this internally-generated goodwill must not be recognised in a balance sheet of the entity which created it, as opposed to the balance sheet of a purchaser of the entity. One rationale for this practice is that the cost of the internally-generated goodwill is especially⁵ hard to measure until the business is sold. By contrast, a purchaser of a business gives valuable consideration for the goodwill and so should recognise the goodwill on its balance sheet, according for example to IFRS 3, Business Combinations (para. 32). Johnson and Petrone (1999) and Johansson et al. (2016) examine the elements of purchased goodwill in more detail, including some extra terminology, such as ‘core goodwill’. For an extensive review of published research on accounting for goodwill under IFRS, see d’Arcy and Tarca (2018).

IFRS 3 and the general IFRS Glossary define goodwill as:

An asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognised.

However, this is not a comprehensive definition of goodwill (even in the specific context of IFRS) because it does not cover the type of goodwill in IAS 38, which does not involve acquisition (although internally-generated goodwill is built up and maintained by various expenditures). In passing, we should also note that it is not self-evident that goodwill is an asset. IFRS 3 (para.s BC 319–323) tries to persuade us that at least part of goodwill is an asset. The old UK standard states more subtly that goodwill is not ‘an asset like other assets’ (FRS 10, Goodwill and Intangible Assets, Summary, para. b).

Is there a clear distinction between internally-generated and purchased goodwill? It has been argued (e.g. EFRAG, 2014, p. 26) that the goodwill that was purchased at the date of acquisition (of a set of assets or of an entity) gradually wears out: loyal customers die, skilled staff retire, and reputation is only maintained with effort. Thus, if the original goodwill number is maintained on a balance sheet, it could be argued that the initial goodwill is gradually being replaced by internally-generated goodwill, which would be inconsistent with IAS 38’s prohibition. Given that goodwill is currently measured on the cost basis,⁶ perhaps a better way of looking at this is that (especially if there is no amortisation) the original goodwill is somewhat protected from impairment write-downs because its cash-generating unit benefits from increases in internally-generated goodwill. It is, of course, in practice impossible to discern year by year what percentage of the purchased goodwill has been substituted with internally-generated goodwill. At first sight, this is indeed a good argument in favour of amortisation, but there would still be a problem because the inability to discern the speed of substitution means that the rate of amortisation must be arbitrary, and thus the balance of unamortised goodwill might still be supported by some internally-generated goodwill.

Having acknowledged this mixing of purchased and unpurchased elements of goodwill (or the support of the latter for the former), is the above point about inadequacy of definition still valid? The fact remains that the IASB’s general definition of goodwill does not cover the goodwill dealt with in IAS 38. In addition to that, there is no acknowledgement in IFRS that there are two types of purchased goodwill. That is, a reader would not know, from studying IFRS 3, that there are two quite different ways of acquiring a business and therefore its goodwill: (i) buying a business (i.e. a set of going concern assets)⁷ from an entity, and (ii) buying the entity which has the business. The old UK standard (FRS 10, para. 4) made this distinction, and it is important because in (i) the goodwill arises in the unconsolidated statements of the acquirer, whereas in (ii) the goodwill arises only in consolidated statements. Therefore, in many countries (e.g. in European countries and in Japan), the goodwill in (i) can be relevant for tax and dividend calculations,⁸ whereas the goodwill in (ii) cannot be. For example, in Germany the amortisation of this former type of goodwill is tax deductible over 15 years,⁹ and in the UK it is also tax deductible,¹⁰ though not in France.

Type (i) purchased goodwill will flow through to the consolidated statements, if any are prepared.¹¹ Type (ii) will arise on consolidation, so the two types can thus appear in the same balance sheet. Given that there can be different tax treatments and different accounting treatments for the two types, it can be useful to use different terms in the same balance sheet, and this has been found.¹² The point gains in importance when the unconsolidated statements are prepared under local GAAP but the consolidated statements under IFRS, which is common in Europe.

Failure to distinguish these types of goodwill led several researchers to suggest that international differences in the tax-deductibility of goodwill affect the acquisitiveness of companies, even though the researchers restricted their investigations to consolidated statements and the goodwill arising on acquisition of the shares of companies, for which there was no tax deductibility in the countries they studied. For example, this problem applies to the research of Lee and Choi (1992) and of Dunne and Rollins (1992) on acquisitions by European and Japanese groups.¹³

Before looking at the words for the two types of purchased goodwill in other languages, it will be useful to have brief terms for them in English. I will refer, respectively, to non-entity-purchase goodwill and entity-purchase goodwill. These are inelegant terms, but can add clarity. Other terms for non-entity-purchase goodwill would be misleading, such as ‘non-consolidation goodwill’ (because it flows through to consolidated statements, if they are prepared), ‘asset purchase goodwill’ (because ‘asset purchase’ is the term in IFRS 3 (para.3) for the purchase of assets which do not amount to ‘a business’ and therefore do not involve the recognition of goodwill) or ‘merged assets goodwill’ (because this brings to mind the former consolidation method called merger accounting or pooling of interests). Other terms for entity-purchase goodwill are also cumbersome, such as ‘goodwill arising on consolidation’.

3.2 Signifiers for Accounting Goodwill in Other Languages

Table 1 (columns 3 and 4) shows the signifiers for the two types of purchased goodwill in the national regulations in the languages which I consider. Given the above important difference in the two types of purchased goodwill, it is useful that they have different signifiers in several languages. For example, in Italian law, we have: (i) avviamento, and (ii) differenza da consolidamento. These give the helpful impressions of (i) going-concern-ness,¹⁴ as opposed to (ii) the arithmetical difference arising because of the process of consolidation. In French, we have (i) fonds commercial, and (ii) écart d’acquisition (‘difference from acquisition’).¹⁵ In European Portuguese, dual signifiers were also used until 2009, as shown in Table 1.

Under current practice, this consolidation difference referred to in Italian, French and Portuguese is frozen in size at the date of acquisition (apart from any subsequent amortisation or impairment). However, before the EU Seventh Directive, in some countries¹⁶ the difference was re-calculated each year, making it even clearer that the difference was seen as a book-keeping ‘plug’ rather than as an asset, equity or liability.

In Swedish, also, the two types of goodwill are distinguished. Column 3 of Table 1 records the Swedish modifier (which might be translated as ‘innards’) for the type of goodwill caused by buying the inside parts of a business in a non-entity purchase. By contrast, some other European languages have the same signifier for both types of purchased goodwill, as may be seen in Table 1.

I am not attempting to deal with Japanese here but (given the comments on published research in Section 3.1 above) it is useful to note the existence of dual signifiers in Japanese: (i) Noren or Eigyo Ken, and (ii) Renketsu Chosei Kanjo (literally, ‘consolidation adjustment account’). The accounting rules can also differ for the types of goodwill in each country. For example, in Japan, Noren is amortised over 5 years but Renketsu Chosei Kanjo over 20 years.¹⁷

When translating IFRS, there are two different problems for those languages which have two terms for purchased goodwill: (a) the internally-generated goodwill of IAS 38 is neither type purchased goodwill, and (b) the goodwill of IFRS 3 covers both types of purchased goodwill, and impairment calculations imply that this goodwill has been bolstered by internally-generated goodwill, especially under a regime with no amortisation but impairment only, as introduced into IFRS in 2004. This presents a dilemma for translators of IFRS if they choose the same signifier in both IAS 38 and IFRS 3, which is universally the case for the languages considered here. If the translators choose either of the terms in columns 3 and 4, they will be wrong. That is, for the internally-generated goodwill of IAS 38, any reference to acquisition or consolidation (as in the signifiers for entity-purchase goodwill recorded in column 4 for some languages) would be wrong; and these signifiers are indeed avoided in translations of IFRS, as column 5 of Table 1 shows. However, this can then create a problem for translations of IFRS 3. For example,¹⁸ the Italian version of IFRS 3 contains the non-entity-purchase signifier, avviamento, even though IFRS is particularly used for consolidated statements.¹⁹ However, this might be the right choice because IFRS 3 thinks that goodwill is an asset rather than merely a ‘differenza’.

A solution applied in some other languages is to create a new signifier. For example, the French translation of IFRS has ‘goodwill’, which had previously been used informally in France (e.g. Bensadon, 2010, p. 76, 192) but is now in the standards which are part of the law. The argument in favour of this is that the goodwill of IFRS 3 (especially under an impairment-only regime) is not the same thing as signified by any of the previous French terms.

The Portuguese translations of IFRS are interesting (see column 5 of Table 1). In the European Portuguese IFRS, we have the same type of solution as in French IFRS: a new Portuguese word ‘goodwill’, avoiding a choice between the two former Portuguese signifiers for purchased goodwill. As Table 1 shows (columns 3 and 4), the signifier ‘goodwill’ has now also been adopted in the Portuguese domestic accounting standards. In Brazilian IFRS, an omnibus term ‘ágio por expectativa de rentabilidade futura’ hides the above problem but explains what the goodwill might be: a premium paid for future expected profit, except of course that nothing has been purchased in the context of IAS 38’s goodwill. As may be seen in Table 1, the problem of translating IFRS is also finessed in German by an omnibus term and in Dutch by an across-the-board use of ‘goodwill’.

One final curiosity should be mentioned. There are yet other signifiers related to goodwill in France. First, there is fonds de commerce (not to be confused with fonds commercial, the non-entity-purchase goodwill discussed above). Fonds de commerce comprise those intangible assets recognised in the acquirer’s balance sheet (but not as separate assets) which were not in the acquiree’s balance sheet because they had been internally generated.²⁰ The French version of the relevant EU Directive²¹ mistakenly has a balance sheet heading for fonds de commerce when it means fonds commercial (which is the accounting representation of the items). However, the French plan comptable général ignores the Directive and has ‘fonds commercial’ in its balance sheet (e.g. in Art.s 214-19 and 821-1). There was also an older term for accounting goodwill in France: ‘survaleur’.²²

The use of ‘fondo de comercio’ in the Spanish version of the EU Directive was presumably affected by the French version of the Directive; and the Spanish plan follows the Directive, referring to ‘fondo de comercio’ for both types of purchased goodwill.²³ Gonzalo and Zeff (2019) discuss the signifiers for goodwill used throughout the Spanish-speaking world, such as ‘crédito mercantil’ and ‘llave del negocio’, though they prefer ‘plusvalía’.²⁴

4. Amortisation, Depreciation and Impairment

Both amortisation and impairment have been applied to goodwill under various circumstances.²⁵ As noted earlier, under IFRS, since amendments of 2004, an ‘impairment-only’ approach has been adopted. IASB (2020) discussed re-introducing amortisation but proposed instead improvements to impairment testing. Thus, this present study should be extended to the translation of these signifiers. It is useful to start with ‘depreciation’. In the everyday English register, depreciation signifies loss of value.²⁶ In the accounting register, this was originally apt because the focus was on the balance sheet and on the amount by which the net book value should be reduced to take account of the using up of the asset; as an extreme case, the exhaustion of a mine (Edwards, 2019, p. 67, 117). Until well into the twentieth century, depreciation did not have today’s meaning of ‘the systematic allocation of the depreciable amount of an asset over its useful life’ (IAS 16, Property, Plant and Equipment, para. 6). Indeed, to take UK companies as an example, sometimes fixed assets were not depreciated at all, or were only depreciated in profitable years (Carlon & Morris, 2003; Edwards, 1981, pp. 21–25; Morris, 1986).

However, now that the modern accounting concept of depreciation is a process of allocation not of valuation, the signifier ‘depreciation’ is potentially misleading to non-accountants because, for example, accountants still charge depreciation on those buildings which are rising in value. There is less chance of confusion with the signifier ‘amortisation’, which implies that the asset is gradually dying over time. This signifier is used in the accounting register in English in relation to intangibles, which die because of the passing of time even more clearly than tangibles do. For tangibles, a better contrast to ‘amortisation’ would be ‘wearing out’.

In practice, ‘depreciation’ and ‘amortisation’ have the same meaning to accountants. For example, IAS 38 says, under the heading ‘Amortisation’, that:

The depreciable amount of an intangible asset with a finite useful life shall be allocated on a systematic basis over its useful life. Amortisation shall begin when the asset is available for use … (para. 97)

Translators of IFRS have reacted differently to this duplication of signifiers which involves no practical difference. Columns 2 and 3 of Table 2 show the signifiers in the translations of IAS 16 and IAS 38, respectively. For example, the Portuguese translations stay close to the form of the English originals, using ‘depreciação’ in IAS 16 and ‘amortização’ in IAS 38. By contrast, most translations use the same signifier for both ‘depreciation’ and ‘amortisation’. This is so for the German, Dutch, Swedish, French and Italian translations. However, as with ‘goodwill’, the approach of translators has sometimes differed even within one language. Spain’s domestic translation²⁷ of IAS 16 on tangible assets picks up a subtle version of the English distinction by generally using ‘amortización’ except for using ‘depreciación’ in paragraphs which relate specifically to usage of assets.²⁸ By contrast, the IASB’s Spanish version of IAS 16 refers to ‘depreciación’ throughout.²⁹ Both Spanish translations use ‘amortización’ for intangibles in IAS 38.

Table 2 . Signifiers for depreciation, amortisation and impairment in the IFRS standards of two language groups.

1. Language	2. IAS 16	3. IAS 38	4. IAS 36
English	Depreciation	Amortisation	Impairment
German	planmässige Abschreibung	planmässige Abschreibung	Wertminderung
Dutch	afschrijving	afschrijving	bijzondere waardevermindering
Swedish	avskrivning	avskrivning	nedskrivning
Italian	ammortamento	ammortamento	riduzione di valore
French	amortissement	amortissement	dépréciation
Spanish	amortización/depreciación^a	amortización	deterioro de(l) valor^b
Portuguese (EU)	depreciação	amortização	imparidade
Portuguese (Brazil)	depreciação	amortização	redução ao valor recuperável

Source: prepared by the author from the translations of the standards on the IASB’s website and in the Official Journal of the European Union, 29.11.2008.

^a In the IASB’s Spanish translation, ‘depreciación’ is used, but in the EU version (and in the national versions of the Instituto de Contabilidad y Auditoria de Cuentas), ‘amortización’ is mainly used though some paragraphs have ‘depreciación’, as discussed in Section 4 of this paper.

^b The title of IAS 36 is ‘Deterioro del valor de los activos’; but without the last three qualifying words, impairment would be ‘Deterioro de valor’.

Of course, the above signifiers are not necessarily intended to be literal translations of the English standards, but instead, some preserve previous words in the accounting registers of the languages. This is particularly obvious in the translations into the three Germanic languages, which take a different stance from all those above, by moving attention away from the economic result of the asset’s decline towards the accountant’s reaction to the decline: writing off the asset. The German ‘planmässige Abschreibung’ (meaning approximately ‘systematic³⁰ off-writing’) gives the clearest indication of what the accountants are doing. It also allows the useful contrast with German law’s signifier for impairment: ausserplanmässige Abschreibung (‘unscheduled off-writing’).³¹ We can now turn to impairment.

The everyday meaning of impairment relates to damage, particularly of sight, hearing or mental abilities. For the accounting register, IAS 36 (Impairment of Assets) does not directly define impairment but implies³² that it is an accounting action of reducing carrying amount to recoverable amount. Nevertheless, the indicators of the possible need for accounting impairment relate to physical or economic damage (para. 12).

Nobes and Stadler (2018) studied 19 translations of IAS 36, noting that the German version uses ‘Wertminderung’ (instead of the German law’s ausserplanmässige Abschreibung). However, this ‘value-reduction’ is vague because there are many reasons other than surprising damage why an asset might lose value, including temporary market fluctuations and permanent wearing out. That is, the translation uses a hypernym: a signifier covering a broad category. This vagueness is shared by most translations, including the French ‘dépréciation’. Column 4 of Table 2 records the signifiers in the translations of IAS 36 for the languages considered in this paper.

Table 3 records the meanings of impairment in the everyday English and in literal English translations of the title of IAS 36 in the other languages. Nobes and Stadler (2018, p. 1989) suggest that only the Korean translation (row 1 of Table 3) preserves the everyday English meaning of ‘damage’ to assets. However, some other translations, though not literal, give users an indication of what the accountants are doing. As discussed above, the accountant’s depreciation or amortisation is not the economic fall in value of an asset nor the wear or passage of time which caused it but the double entries which allocate cost over life. Similarly, the accountant’s impairment is not the economic fall in value nor the damage which caused it but the unscheduled write off or, more exactly, the writing down to recoverable amount. In which case, the Brazilian translators of IAS 36’s ‘impairment’ chose helpful words, meaning approximately ‘reduction to recoverable value’ (row 2 of Table 3). Also useful are German law’s ‘unscheduled off-writing’ (as noted above) and the rather subtle Swedish distinction between the gradual ‘off-writing’ of depreciation and the surprising one-off ‘down-writing’ of impairment. In Dutch, there is a contrast between gradual ‘off-writing’ of depreciation and one-off ‘special fall in value’ of impairment (row 3 of Table 3), though the latter refers to an economic fall in value rather than to the accountant’s reaction to some economic falls in value. Row 4 records the translation error in the European Portuguese version of IAS 36.³³

Table 3 . ‘Impairment’: definition in English and literal translations of non-English signifiers.

Signified in English or approximate literal translation into English	Examples
1. Deterioration, damage	Cambridge English Dictionary; Korean IAS 36
2. Adjusting the asset downwards:
(a) to recoverable amount (b) more vaguely	Brazilian Portuguese IAS 36 Swedish and Arabic IAS 36; German law
3. Fall in value:
(a) special (b) unmodified	Dutch IAS 36 IAS 36 in Chinese, Danish, Finnish, French, German, Italian, Japanese, Norwegian, Polish, Russian, Spanish
4. Imparity (unequalness)	European Portuguese IAS 36

Source: prepared by the author from tables in Nobes and Stadler (2018).

5. Summary and Conclusions

As I write this (in early 2021), the IASB is beginning to process the comments received on its Discussion Paper (IASB, 2020) concerning the reform of accounting for goodwill, which includes consideration of amortisation and impairment. In this context, I have discussed above various points about the translation of the signifiers ‘goodwill’, ‘depreciation’, ‘amortisation’ and ‘impairment’ as used in four IFRS accounting standards. My main focus is on goodwill, which has not been examined in this context before but is uniquely³⁴ interesting because it has several distinct signifieds in English.

In French, for example, there are many signifiers for different types of goodwill (the four of Table 1, plus several others mentioned in my text), whereas English has only one signifier, unless unofficial or ungainly terms are used. For a language as rich in words as English, it is weak to use the same signifier across the various signifieds of Table 1. The lack of different signifiers in English has led to several problems. First, the IASB’s general definition of goodwill does not encompass the internally-generated goodwill of IAS 38. Secondly, some translations of IAS 38 have used a previous term for purchased goodwill when dealing with unpurchased goodwill, and some translations of IFRS 3 have used a previous term for non-entity-purchase goodwill though the standard is mainly applied for consolidated statements. Thirdly, the paucity of signifiers has confused some academic researchers who have not appreciated that there are two types of purchased goodwill, and have mistakenly thought that the regulations for non-entity-purchase goodwill applied to the consolidated statements that they were examining.

The international variety in approaches to translation extends to the related issues of depreciation, amortisation and impairment, as shown in Tables 2 and 3. Despite its everyday meaning of ‘loss of value’, the signifier ‘depreciation’ in the accounting register means allocation of cost over life, though with the implication of wear through use (for tangible assets in IAS 16), rather than dying over time (as for the ‘amortisation’ of intangible assets in IAS 38). This distinction is preserved in the Portuguese translations and in the IASB’s Spanish translations of the standards. It is also applied, with greater precision than in the original standards, in Spain’s domestic version of IFRS, i.e. by confining ‘depreciación’ to usage methods of depreciation in IAS 16. In most languages, though, there is no such distinction between depreciation and amortisation. For both tangibles and intangibles, the French and Italian versions of IFRS focus on the dying over time whereas the Germanic translations focus on the accountant’s response: the off-writing.

For ‘impairment’, there is greater variety in the translations: one translation conveys damage, some a special sort of writing-down, but most use a vague hypernym for fall in value. Nobes and Stadler (2018) suggest that, although these types of translation difficulty might not affect the practice of accountants (who just comply with the detailed instructions in the standards), they can certainly cause misleading information for the users of financial statements, especially when those documents are themselves translated (e.g. French company annual reports published in English). Nobes and Stadler (2018) show that such errors flow through to databases, so analysts need to be careful.

A message for standard-setters is that it is important to define terms as carefully as possible. The IASB’s definition of goodwill does not encompass all the types of goodwill covered by the standards, and it obscures a distinction between two types of goodwill that it does encompass. In the planned revision of IFRS 3, an opportunity arises to help readers by defining goodwill properly and by mentioning the two different types of purchased goodwill which it covers, as the previous UK standard did. This might prompt translators to use two or more signifiers for goodwill. One further implication is that translators of IFRS should ideally be so technically expert that they can see through the problems in the source language, such as the existence of hypernyms. In sum, there are major terminological problems in the area of goodwill before any translation, but certainly the standard-setters should choose terms with an eye to the difficulty of translating standards into many languages.

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.