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27Aug2012

Josette Ferrer Invited to Speak at IMA Controllership Forum

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On August 27, 2012, Josette spoke on valuation issues related to long-lived asset impairment at the Fall Controllership Forum training held by the Institute of Management Accountants ("IMA"), Peninsula-Palo Alto Chapter. Josette's presentation covered guidance related to long-lived asset impairment as detailed in Accounting Standards Codification Topic 360, Accounting for the Impairment or Disposal of Long-Lived Assets, auditor review considerations, case studies related to a variety of industries and assets, and sample SEC comments and issues.
18Aug2012

Josette Ferrer Discusses Valuation Issues Related to Business Combinations at IMA Yearly Conference

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On August 18, 2012, Josette spoke on valuation issues related to business combinations at Knowledge Synergized, a conference held by the Institute of Management Accountants ("IMA") Peninsula-Palo Alto Chapter. Josette provided an overview of financial reporting guidance and references, and discussed observations on key qualitative factors impacting intangible asset and goodwill values, auditor review considerations, technical issues (including market participant assumptions, earn-outs / contingent consideration, asset-specific assumptions, and amortization life estimates), and sample SEC comments and issues.
25Jan2012

FASB Proposes New Update for Impairment of Indefinite-Lived Intangible Assets

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The FASB has proposed certain changes to Accounting Standards Update ("ASU") 350-30, Intangibles — Goodwill and Other — General Intangibles Other than Goodwill. The proposed amendment is similar to the simplification that FASB issued last year relating to the impairment testing of goodwill. Under the proposed ASU, an entity testing indefinite-lived intangible assets for impairment would have the option of performing a qualitative assessment to determine whether it is more likely than not that the asset is impaired. Examples of intangible assets subject to the proposal would include indefinite-lived trademarks, licenses, and distribution rights. The standard would apply to all public, private, and not-for-profit organizations. The ASU is open for comment through April 24, 2012.
20Dec2011

Josette Ferrer Discusses Goodwill Impairment Testing Updates at IMA Event

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On December 20, 2011, Josette Ferrer spoke on goodwill impairment testing issues at the monthly technical meeting hosted by the Institute of Management Accountants ("IMA") Peninsula-Palo Alto chapter. Josette's presentation provided a summary of changes related to recently-issued Accounting Standards Update 2011-08, Testing Goodwill for Impairment, implications, and a review of various case studies and examples.
05Dec2011

Josette Ferrer Discusses Wine Industry Valuation Issues at SF FEI Event

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Josette collaborated with Bacchus Capital Management for a presentation at a San Francisco Financial Executives International ("FEI") professional development event on December 5, 2011. The presentation, entitled "Wine Industry M&A Outlook", focused on the current state and prospects for M&A in the wine industry, as well as relevant industry valuation drivers, issues, and trends. Josette's co-presenter was Quinton Jay, a Managing Director at Bacchus Capital Management, who has 15 years of experience running both boutique and well-known wineries as well as in strategic consulting in the wine and finance industries. Josette's discussion focused on valuation issues related to wine industry acquisitions (including purchase price allocation considerations), as well as impairment (primarily related to trade names, trademarks, and brands).
18Nov2011

AICPA Publishes Draft of Updated IPR&D Practice Aid

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The AICPA's Financial Reporting Executive Committee issued a working draft of the AICPA Accounting and Valuation Guide, Assets Acquired to Be Used in Research and Development Activities. The working draft would replace the current practice aid which was originally issued in 2001 (Assets Acquired in a Business Combination to Be Used in Research and Development Activities: A Focus on Software, Electronic Devices & Pharmaceutical Industries). The working draft includes discussions on accounting and valuation issues that have emerged since the original practice aid was released. The comment period ends March 15, 2012.
07Nov2011

AICPA Issues Draft Goodwill Impairment Guide

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On November 4, 2011, the AICPA's Financial Reporting Executive Committee issued a working draft of the AICPA Accounting and Valuation Guide – Testing Goodwill for Impairment. The draft, developed by the AICPA Impairment Task Force, provides non-authoritative guidance and illustrations regarding goodwill impairment testing for valuation specialists, preparers of financial statements, and independent auditors. Although it includes some guidance from Accounting Standards Update 2011-08, Testing Goodwill for Impairment (recently issued in September 2011), the working draft does not provide significant task force commentary or prepared examples to illustrate the qualitative assessment framework set forth in the ASU. The AICPA requests informal feedback on the working draft by March 15, 2012.
28Sep2011

FASB Issues Accounting Standards Update 2011-08, Testing Goodwill for Impairment

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On September 15, 2011, the FASB issued Accounting Standards Update 2011-08, Testing Goodwill for Impairment. Based on the guidance in the ASU, companies have the option to qualitatively determine whether they can bypass the two-step goodwill impairment test under FASB Accounting Standards Codification Topic ("ASC") 350-20,Intangibles – Goodwill and Other: Goodwill.

The new standard allows an entity first to assess qualitatively whether it is necessary to perform Step 1 of the two-step annual goodwill impairment test. An entity is required to perform Step 1 only if the entity concludes that it is more likely than not that a reporting unit's fair value is less than its carrying amount (that is, a likelihood of more than 50%). This is different than the previous guidance, which required entities to perform Step 1 of the test at least annually by calculating and comparing the fair value of a reporting unit to its carrying amount.

Qualitative Assessment Factors

ASC 350-20-35-3C (added by the ASU) provides the following examples of events and circumstances that may be considered in the qualitative assessment:
  1. Macroeconomic conditions such as a deterioration in general economic conditions, limitations on accessing capital, fluctuations in foreign exchange rates, or other developments in equity and credit markets
  2. Industry and market considerations such as a deterioration in the environment in which an entity operates, an increased competitive environment, a decline in market-dependent multiples or metrics (in both absolute terms and relative to peers), a change in the market for an entity's products or services, or a regulatory or political development
  3. Cost factors such as increases in raw materials, labor, or other costs that have a negative effect on earnings and cash flows
  4. Overall financial performance such as negative or declining cash flows or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods
  5. Other relevant entity-specific events such as changes in management, key personnel, strategy, or customers; contemplation of bankruptcy; or litigation
  6. Events affecting a reporting unit such as a change in the composition or carrying amount of its net assets, a more-likely-than-not expectation of selling or disposing all, or a portion, of a reporting unit, the testing for recoverability of a significant asset group within a reporting unit, or recognition of a goodwill impairment loss in the financial statements of a subsidiary that is a component of a reporting unit
  7. If applicable, a sustained decrease in share price (in both absolute terms and relative to peers)
Companies should also consider:
  • The extent to which each of the adverse events and circumstances identified could affect the comparison of a reporting unit's fair value with its carrying amount. An entity should place more weight on the events and circumstances that most affect a reporting unit's fair value or the carrying amount of its net assets.
  • Any positive and mitigating events and circumstances that may affect the analysis. However, positive and mitigating evidence should not be viewed as a "rebuttable presumption" that an entity does not need to perform the quantitative calculation under Step 1.
  • If an entity has a recent fair value calculation for a reporting unit, it also should include this as a factor in its consideration of the difference between the reporting unit's fair value and carrying amount.

Other Considerations

ASU 2011-08 also included the following amendments and considerations:
  • Evaluating Goodwill for Impairment on an Interim Basis
      ASC 350-20-35-30 states that goodwill should be tested for impairment annually and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
      However, the ASU removes from this paragraph the previous examples of such events and circumstances and replaces them with the qualitative assessment factors in ASC 350-20-35-3C (a through g cited above).
  • Reporting Units With Zero or Negative Carrying Value
      ASU 2010-28 modified Step 1 of the goodwill impairment test for reporting units with a zero or negative carrying value, stating that under such circumstances an entity should perform Step 2 of the impairment analysis when it is more likely than not that goodwill is impaired. In performing this step, the entity should consider the events and circumstances outlined above. In addition, ASC 350-20-35-8A (as amended by ASU 2011-08) states that an entity should consider whether there are significant differences between the carrying amount and the estimated fair value of assets and liabilities, and the existence of significant unrecognized intangible assets.
      If the carrying amount of a reporting unit is zero or negative and the entity determines, on the basis of the qualitative assessment, that it is more likely than not that a goodwill impairment exists, the entity would proceed directly to step 2 to measure the goodwill impairment loss.
  • Carry Forward Option Removed
      ASU 2011-08 eliminates the previous option for entities to carry forward a reporting unit's Step 1 fair value measurement from one year to the next if certain criteria are met.
      Entities currently using the carry forward option will need to assess whether to perform the qualitative assessment or move straight to the quantitative Step 1 calculation.
  • Qualitative Assessment Is Optional
      An entity is not required to perform the qualitative assessment described in ASU 2011-08 and can proceed directly to Step 1 of the goodwill impairment test without evaluating any of the factors listed in the ASU.

Effective Date

The revised standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. However, an entity can choose to early-adopt the revised standard even if its annual test date is before September 15, 2011 (the date on which the revised standard was issued), provided that the entity has not yet issued its financial statements for the period that includes its annual test date.

Resources

15Sep2011

Josette Ferrer Participates in FEI M&A / Valuation Panel

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Josette participated in a panel discussion for the San Francisco Financial Executives International ("FEI") chapter on September 15, 2011. The panel discussed "The Impact of Volatility on M&A and Valuation" and also featured Doug Hart - Practice Leader and Assurance Partner from BDO, Mat Rosswood - Transaction Services Partner from BDO, and Keith Bencher - Senior Vice President of Strategy and Development from Federated Media.