The Limit of Long – Range Forecasting in Goodwill Impairment Reliability, Avoiding Optimism Bias and the Discipline of IND AS 36

Under Ind AS 36, assessing goodwill impairment via "value in use" restricts cash flow forecasts to a five-year maximum, unless explicitly justified. Companies often improperly extend and perpetually defer these projected inflows to avoid recognizing impairment. However, the Standard dictates that extended forecasts must be strictly reliable and validated by historical performance. Regulators like ESMA and NFRA emphasize that repeatedly missing past projections destroys forecast credibility. Furthermore, speculative future enhancements cannot be included. Ultimately, perpetually deferred cash flows fail the reliability test, rendering goodwill impairment unavoidable and mandatory.

INTRODUCTION

Impairment testing of goodwill under Ind AS 36 Impairment of Assets hinges on the recoverability of future economic benefits. The Standard allows for value in use (ViU) assessments using forecasted cash flows, but imposes strict conditions, particularly when entities seek to justify forecast periods beyond five years. In practice, many companies operating in high-tech or capital-intensive sectors rely on extended projections, sometime perpetually deferring expected cash flows to avoid impairment. This practice has drawn global and domestic regulatory scrutiny. This article examines a specific impairm