Josette Ferrer Invited to Speak at Entrepreneurship Panel by Institute of Management Accountants and American Society of Women Accountants
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The FASB issued an Exposure Draft of a proposed ASU intended to simplify how an entity is required to test goodwill for impairment. The proposal would allow companies to perform a qualitative assessment to determine whether further impairment testing is necessary.
The proposal would allow a company to first assess qualitatively whether it is necessary to perform the current two-step goodwill impairment test. Current guidance requires an entity to test goodwill for impairment, on at least an annual basis, by first comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit is less than its carrying amount, then the second step of the test must be performed to measure the amount of impairment loss, if any.
In the proposed ASU, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The ASU lists a number of factors to consider in conducting the qualitative assessment, including deteriorating macroeconomic, industry, or market conditions; entity-specific considerations such as a change in management or a decline in overall financial performance; and other events such as an expectation that a reporting unit will be sold.
If approved, the amendments in the proposed ASU would be effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption would be permitted.
At the AICPA National Conference held in December 2010, invited members of the SEC and PCAOB presented their views on current developments in the Division of Corporate Finance.
In its remarks, the SEC discussed issues that its staff has encountered related to equity-linked instruments:
Under the guidance in the new Accounting Standards Update, an entity must consider whether it is more likely than not that goodwill impairment exists for a reporting unit with a zero or negative carrying amount. If it is more likely than not that goodwill impairment exists, the second step of the goodwill impairment test must be performed to measure the amount of goodwill impairment loss, if any. To make this determination, an entity should consider whether there are adverse qualitative factors that could impact the amount of goodwill. These factors could include (but are not limited to) an adverse business climate, unexpected competition, and loss of key personnel.
As a result of the new guidance, an entity can no longer assert that a reporting unit is not required to perform the second step of the goodwill impairment test solely because the carrying amount of the reporting unit is zero or negative.