New AICPA Guide Focuses on Goodwill Impairment Testing

By Jason Bramwell
 
A new guide released on November 8 by the Financial Reporting Executive Committee of the American Institute of CPAs (AICPA) provides accountants, auditors, and valuation specialists with guidance for impairment testing of goodwill.
 
The AICPA noted the publication, Testing Goodwill for Impairment  Accounting and Valuation Guide, will also be an important resource for preparers of financial statements of public and private companies that follow Financial Accounting Standards Board (FASB) guidance on goodwill.
 
The guide, developed by the AICPA Impairment Task Force, specifically focuses on practice issues related to the qualitative assessment and the first step of the two-step goodwill impairment test required under FASB Topic 350, Intangibles  Goodwill and Other
 
On August 10, 2011, the FASB approved an accounting standards update that simplified testing for goodwill impairment. Under the standards update, an entity would be allowed to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test.
 
Other topics the guide covers include the following:
 
Fair value. The guide discusses measuring the fair value of a reporting unit in accordance with FASB Topic 820, Fair Value Measurement, and illustrates the valuation techniques often utilized for this purpose. The guide also provides an illustration of the second step of the two-step goodwill impairment test.
 
Practice issues. The guide addresses such practice issues as:
  • Identifying reporting units
  • Assigning assets and liabilities to a reporting unit
  • Treating shared assets and liabilities among reporting units
  • Assigning recorded goodwill to reporting units
  • Timing of goodwill impairment test
  • Considering market participant assumptions
  • Performing comparison to market capitalization
New qualitative assessment. The guide describes the framework for performing the optional qualitative assessment and includes an example that illustrates one approach for performing it.
 
Comprehensive example. The guide includes a comprehensive example of a valuation analysis used for performing steps one and two of the goodwill impairment test. In this example, the discount rate adjustment technique, the guideline public company method, and the guideline company transactions method are used to determine the fair value of a reporting unit. These are the most frequently used methods in practice when determining the fair value of a reporting unit in accordance with FASB Topic 820.
 
Disclosures. The guide includes an appendix which provides example disclosures that meet the requirements contained in FASB Topic 350 as well as those of Item 303 of US Securities and Exchange Commission (SEC) Regulation S-K.
 
The AICPA is also hosting a video webcast from 3:00 p.m. to 5:00 p.m. ET on November 19 in which representatives of the Impairment Task Force will discuss the key topics included in the guide.
 
Related articles:
 

You may like these other stories...

Former DOJ Tax Division head Kathryn Keneally joining DLA Piper in New YorkGlobal law firm DLA Piper announced on Thursday that Kathryn Keneally, the former head of the US Justice Department Tax Division, is joining the firm...
Read more from Larry Perry here and in the Today's World of Audits archive.In my last article, I summarized major differences between principles in U.S. GAAP and the Financial Reporting Framework for Small and Medium-...
OECD calls for coordinated fight against corporate tax avoidanceDavid Jolly of the New York Times reported that dozens of countries with the most advanced economies have agreed on principles for concrete action to prevent...

Already a member? log in here.

Upcoming CPE Webinars

Sep 24
In this jam-packed presentation Excel expert David Ringstrom, CPA will give you a crash-course in creating spreadsheet-based dashboards. A dashboard condenses large amounts of data into a compact space, yet enables the end user to easily drill down into details when warranted.
Sep 30
This webcast will include discussions of important issues in SSARS No. 19 and the current status of proposed changes by the Accounting and Review Services Committee in these statements.
Oct 21
Kristen Rampe will share how to speak and write more effectively by understanding your own and your audience's communication style.
Oct 23
Amber Setter will show the value of leadership assessments as tools for individual and organizational leadership development initiatives.