The Accounting Policy & Practice Report ® provides financial accounting policy makers, advisors, and practitioners with the latest news, expert insights, and guidance on emerging, evolving, and complex accounting issues. Expert News & Commentary.
May 12 — The Financial Accounting Standards Board proposed a simplified goodwill impairment test that companies must perform annually, or when a triggering event occurs.
A company records goodwill when it buys another company and the price of the acquired firm greatly exceeds the fair value of the firm's identifiable assets—tangible and intangible—and liabilities acquired. It puts goodwill—sometimes worth billions of dollars—on the balance sheet as a noncurrent asset, and it must perform a goodwill impairment test at least once a year (11 APPR 1013, 11/6/15).
FASB's May 12 proposal would eliminate the second step of the standard setter's two-step impairment test, thereby making the process easier and less costly, according to the main tenets of the proposal.
FASB proposed that an annual—or any interim—goodwill impairment test should compare the fair value of a reporting unit with its carrying amount (12 APPR 01, 1/15/16). If the carrying amount exceeds the reporting unit's fair value, an impairment charge would be recognized for the difference. However, “that amount shouldn't exceed the carrying amount of goodwill allocated to that reporting unit,” the proposal states.
The proposal retains the option for a company to perform a qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.
It requires a company to disclose the existence of any reporting units with zero or negative carrying amounts and the amount of goodwill allocated to them. However, those reporting units would be subject to the same quantitative impairment test as reporting units with positive carrying amounts, the proposal states.
The proposal would require prospective application and transition disclosures. A company would disclose the nature of—and reason for—the change in accounting principle upon transition, the proposal said.
A company would disclose the change in accounting principle in the first annual period after the date the company adopted the rule, and in the interim periods within that first annual period.
FASB wants comments submitted by July 11 on the on the proposal, Intangibles—Goodwill and Other (Topic 350), Simplifying the Accounting for Goodwill Impairment.
To contact the reporter on this story: Denise Lugo in Norwalk, Conn., at email@example.com
To contact the editor responsible for this story: Laura Tieger Salisbury at firstname.lastname@example.org
For a copy of the board's proposal including how to submit comments, go to http://src.bna.com/eW4.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)