Abstract

In calculating recoverable amount of cash generating units (CGUs) under the implementation of value in use approach, discount rate selection represents a central point in deciding the magnitude of impairment charges under Hong Kong Financial Reporting Standards (HKFRSs). The selection of discretion discount rate in the discounted cash flow model (DCF) could be used opportunistically to misstate impairment losses for the benefit of financial statement preparers and causes the transparency of the financial reports. This study is conducted to provide evidence of opportunistic behaviours relating on goodwill impairment by reporting statement preparers. By comparing independently estimated risk adjusted discount rates and those subjectively presented by large listed Hong Kong firms in the first year adoption of HKFRSs, the results showed that discount rates were presented in disarray, in which discount rates were more overstated than understated in comparison with scientifically generated ones.