Purpose – This paper outlines the link between value creation, performance measurement andgoodwill accounting according to IFRS and US-GAAP. Since economic goodwill is identical to thepresent value of future residual income, we examine the question of how accounting informationgathered for impairment testing of goodwill according to IAS 36 and FAS 142 can be used forinternal control purposes.Design/methodology/approach – The paper adopts common assumptions in the literature ofresidual income based valuation and analytically derives a periodic performance measure of bothvalue creation and its afterward realization based on information available from impairment testing.Findings – This paper shows that information required by IFRS and US-GAAP to evaluate a firms’goodwill can be used to design a performance measurement system which provides informationabout both value creation and afterward realization of value.Practical implications – From a practical perspective, we show that appropriate adjustments of thedata used for impairment testing result in information which ideally fits the requirements for anoptimal performance measurement system.Originality/value – The paper presents a performance measure which provides information aboutthe actual creation of value as well as its afterward realization in a period and therefore is superiorto traditional residual income based performance measures.
