Discretionary Impairments of Finite and Indefinite Intangible Assets

The impairment frequency and quantity of acquired intangible assets remain a focal point in the debate about the proper measurement of acquired intangible assets. Using hand-collected data on acquired intangible assets net amounts and their impairments, we exploit the different determinants of finite and indefinite intangible assets and goodwill to explore how impairment practices differ across categories. While indefinite intangible asset and goodwill impairments are largely explained by reporting quality indicators, we find only weak evidence between reporting quality and finite intangible asset impairments. In contrast, finite intangible asset impairments are explained by deteriorating business characteristics. Internal monitoring mechanisms strongly moderate the likelihood of timely impairments for indefinite intangibles and goodwill for firms that face impairment pressure, indicating the role of corporate governance in enhancing reporting quality. Our results are relevant for policymakers as they consider proposals to subsume intangible assets into goodwill as well as modifying impairment test procedures.