Goodwill impairment testing has been a challenging area for many financial statement preparers since the issuance in 2001 of FASB Accounting Standards Codification (ASC) Subtopic 350-20 (formerly FASB Statement No. 142).
A FASB Accounting Standards Update issued in September 2011 was designed to make this topic easier for preparers. The standard allows an organization to assess qualitative factors to determine if a quantitative goodwill impairment test is necessary.
But the qualitative assessment process can be complicated and result in a variety of perspectives. When extensive efforts are necessary to perform and document the qualitative assessment, it can be more effective to simply perform the quantitative test from the start.
A new guide released today by the AICPA Financial Reporting Executive Committee is designed to help preparers, auditors, valuation specialists, and others navigate this and other challenges with respect to goodwill impairment testing.
Testing Goodwill for Impairment—Accounting and Valuation Guide provides nonauthoritative guidance that focuses on practice issues related to the qualitative assessment and the first step of the two-step test. Among other things, the guide:
- Addresses issues such 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, and performing comparison to market capitalization.
- Provides a framework for performing the optional qualitative assessment and illustrates one approach for performing it.
- Discusses measuring the fair value of a reporting unit in accordance with the guidance in ASC Topic 820, Fair Value Measurement, and illustrates the valuation techniques often used for this purpose.
- Provides an illustration of the second step of the two-step goodwill impairment test.
Task force representatives who worked on the guide will discuss its main themes in a video webcast on Dec. 18 from 1 to 3pm ET.
Ken Tysiac (
) is a JofA senior editor.