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 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:
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.
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)
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.