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...

It's not a reality—yet—but accounting software is poised to eliminate accountants. We are at a tipping point for many similar professions: online education replacing professors, legal software replacing...
Inversions: Loophole Is the ProblemJacob J. Lew, the U.S. Treasury Secretary, published an opinion piece in the Wall Street Journal that "the system has become full of inefficiencies and special-interest loopholes. That...
School tax breaks get House support as Democrats objectRichard Rubin of Bloomberg reported that the House of Representatives on Thursday voted to expand and simplify tax breaks for education as Republicans continue to pass...

Upcoming CPE Webinars

Jul 31
In this session Excel expert David Ringstrom helps beginners get up to speed in Microsoft Excel. However, even experienced Excel users will learn some new tricks, particularly when David discusses under-utilized aspects of Excel.
Aug 5
This webcast will focus on accounting and disclosure policies for various types of consolidations and business combinations.
Aug 20
In this session we'll review best practices for how to generate interest in your firm’s services.
Aug 21
Meet budgets and client expectations using project management skills geared toward the unique challenges faced by CPAs. Kristen Rampe will share how knowing the keys to structuring and executing a successful project can make the difference between success and repeated failures.