What happens to impairments of goodwill under IFRS?

Under IFRS, impairments of goodwill are considered to be permanent and cannot be reversed in future periods. This principle is rooted in the fact that goodwill arises from intangible assets that are often related to synergies, brand reputation, or other factors that cannot be remeasured or recovered in the same way tangible assets can be. Once an impairment of goodwill is recognized, it reflects a significant and lasting decrease in value that impacts the company’s financial statements profoundly.

The rationale behind this approach is to maintain consistency and reliability in financial reporting. Allowing the reversal of goodwill impairments could lead to volatility in reported earnings and financial position, as goodwill values could fluctuate due to changes in market perception or future performance projections. Consequently, IFRS prescribes that, once impaired, goodwill remains at its reduced value on the balance sheet and is not eligible for reversal, underscoring its permanence in accounting practice.