The American Institute of CPAs’ Financial Reporting Executive Committee and the AICPA’s Impairment Task Force plan to release the final version of a new AICPA Accounting and Valuation Guide, "Testing Goodwill for Impairment." on Friday.
The new guide provides nonauthoritative guidance and illustrations for preparers, auditors, valuation specialists and others regarding the accounting, valuation and disclosures related to goodwill impairment testing.
Since the issuance of ASC 350-20 (formerly SFAS 142) in 2001, the two-step goodwill impairment test has had a significant impact on financial reporting, the AICPA pointed out. In 2011, the Financial Accounting Standards Board amended ASC 350 to permit an entity to first assess qualitative factors (Step 0) to determine whether to proceed to Step 1 of the two-step test. The new guide, which takes readers through the details of the goodwill impairment test, addresses many practice accounting and valuation issues that have emerged over the years, including the following:
Fair Value: The guide discusses measuring the fair value of a reporting unit in accordance with FASB ASC 820, Fair Value Measurement, and illustrates the valuation techniques often utilized in practice for this purpose.
Practice Issues: The guide focuses on practice issues related to the qualitative assessment and the first step of the two-step goodwill impairment test. It addresses such issues as identifying reporting units, assigning assets and liabilities to a reporting unit, treatment of shared assets and liabilities among reporting units, assigning recorded goodwill to reporting units, when to test goodwill for impairment, consideration of market participant assumptions, performing comparison to market capitalization, and more.
New Qualitative Assessment: The guide contains a chapter which discusses and illustrates the new optional qualitative assessment. It provides a framework for performing the qualitative assessment and includes an example that illustrates one approach for performing it.
Example: The guide includes a comprehensive example of a valuation analysis used for performing steps 1 and 2 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.
Disclosures: The guide includes an appendix which provides example disclosures which meet the requirements contained in FASB ASC 350-20 as well as those of Item 303 of SEC Regulation S-K.
In connection with the release of the guide, the AICPA will host a video webcast on November 19 from 3 to 5 pm ET during which task force representatives who worked on the guide will discuss the main provisions.
In addition, on Tuesday, November 12 at noon EST, experts from Duff & Phelps will discuss the results from its fifth annual U.S. Goodwill Impairment Study, compiled using financial information from more than 5,100 companies representing in excess of 93 percent of U.S. market capitalization. Managing director Greg Franceschi, who currently serves as the co-chair of AICPA’s Goodwill Impairment task force, will discuss the new AICPA guide on goodwill impairment implementation and will be joined by Gary Roland, managing director of the firm’s Office of Professional Practice, and James Harrington, director of Duff & Phelps’ Office of Professional Practice.
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