Australia’s Economic Growth Slows in Q3 Despite Strong Investment Activity 
US Futures Rise as Investors Eye Earnings, Inflation Data, and Wildfire Impacts 
US Gas Market Poised for Supercycle: Bernstein Analysts 
European Oil & Gas Stocks Face 2026 With Cautious Outlook Amid Valuation Pressure 
Stock Futures Dip as Investors Await Key Payrolls Data 
China's Refining Industry Faces Major Shakeup Amid Challenges 
Citi Sets Bullish 2026 Target for STOXX 600 as Fiscal Support and Monetary Easing Boost Outlook 
BOJ Governor Ueda Highlights Uncertainty Over Future Interest Rate Hikes 
Energy Sector Outlook 2025: AI's Role and Market Dynamics 
Fed May Resume Rate Hikes: BofA Analysts Outline Key Scenarios 
Asian Currencies Steady as Rupee Hits Record Low Amid Fed Rate Cut Bets 
Asia’s IPO Market Set for Strong Growth as China and India Drive Investor Diversification 
Moody's Upgrades Argentina's Credit Rating Amid Economic Reforms 
Asian Markets Mixed as Fed Rate Cut Bets Grow and Japan’s Nikkei Leads Gains 
Geopolitical Shocks That Could Reshape Financial Markets in 2025 
IMF Deputy Dan Katz Visits China as Key Economic Review Nears 
As policymakers revisit the accounting for goodwill, a key question is whether an impairment model provides valuable information to investors, or other users of financial statements. To provide more clarity around the issue, Moody's Investors Service analyzed whether goodwill impairments are a leading indicator of heightened credit risk.
In a report that reviewed rating trends between 2006 and 2015, Moody's found that companies' ratings actually start deteriorating more than two years prior to a goodwill impairment, indicating that impairments validate, rather than predict, increasing credit risk.
"A lack of consistency in valuation and subjective assumptions, combined with little to no warning of impairments from limited disclosure, provide challenges to financial statement users," said David Chan, a Vice President, Senior Accounting Analyst at Moody's. "The subjectivity embedded in goodwill impairment accounting in the US limits its effectiveness and timeliness."
Speculative grade companies are generally more credit sensitive to impairment events than investment grade companies, Moody's found. The speculative grade companies demonstrated more overall ratings deterioration, starting earlier, and with a sharper decline at the time of impairment. Conversely, investment grade companies showed more credit deterioration after the impairment event than before, evidence of their higher tolerance to deteriorating credit conditions.
Moody's report also noted that the higher the impairment, the higher the credit risk. Companies that recorded significant goodwill impairments, on average, had lower credit ratings than companies that did not. Moody's also found that the size of the impairment correlates to the level and pace of ratings deterioration.
Moody's also observed that rating outlooks are, on average, negative more than a year prior to the impairment event. This illustrates that negative factors exist well before any impairment signifying a heightened credit risk.
