Revised Rules for Goodwill Impairment, New Health Care Proposals

The most recent work of FASB’s Emerging Issues Task Force resulted in a new update and two proposed updates to the FASB Accounting Standards Codification (ASC).


ASC Update no. 2010-28 , Intangibles—Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (a consensus of the FASB Emerging Issues Task Force),  addresses questions about entities that have reporting units with zero or negative carrying amounts.


FASB said it released the guidance because some entities concluded that Step 1 of the two-step test is passed in those circumstances because the fair value of their reporting unit will generally be greater than zero. As a result of that conclusion, some constituents raised concerns that Step 2 of the test was not being performed despite factors indicating that goodwill may be impaired.


The amendments do not provide guidance on how to determine the carrying amount or measure the fair value of the reporting unit.


For public companies, the amendments in the update are effective for fiscal years, and interim periods within those years, beginning after Dec. 15, 2010. Early adoption is not permitted. Private companies get another year, until after Dec.15, 2011, and they may early adopt using the effective date for public companies.


Proposed ASC Update , Health Care Entities (Topic 954) Presentation and Disclosure of Net Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts (a consensus of the FASB Emerging Issues Task Force) would require a health care entity to change the presentation of its statement of operations by reclassifying the provision for bad debts from an operating expense to a reduction from revenue (net of contractual allowances and discounts).


Additionally, health care providers would be required to provide enhanced disclosure about how they consider collectibility in determining the amount and timing of revenue and bad-debt expense. Comments are due February 15 and may be submitted here.


Proposed ASC Update , Other Expenses (Topic 720): Fees Paid to the Federal Government by Health Insurers (a consensus of the FASB Emerging Issues Task Force), addresses how health insurers should recognize and classify in their income statements fees mandated by the Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act.


The proposed amendments  specify that the liability for the fee should be estimated and recorded in full once the entity provides qualifying health insurance in the applicable calendar year in which the fee is payable with a corresponding deferred cost that is amortized to expense using a straight-line method of allocation unless another method better allocates the fee over the calendar year that it is payable.


Additionally, the update indicates that the fee would not meet the definition of an acquisition cost as amended by ASC Update no. 2010-26, Financial Services—Insurance (Topic 944): Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts.


Comments, due April 18, may be submitted here .


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