oct 2011: qualitative evaluation to determine the necessity of step 1 of the goodwill impairment...
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8/4/2019 Oct 2011: Qualitative Evaluation To Determine The Necessity of Step 1 of The Goodwill Impairment Test
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Qualitative Evaluation
To DetermineThe Necessity of Step 1
of The Goodwill
Impairment Test
8/4/2019 Oct 2011: Qualitative Evaluation To Determine The Necessity of Step 1 of The Goodwill Impairment Test
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QUALITATIVE EVALUATION TO DETERMINE THENECESSITY OF STEP 1 OF THE GOODWILL
IMPAIRMENT TEST
By Jim Pitrat, CPA - Practice Leader, Assurance & Advisory Practice OCTOBER 4, 201
Public Company Financial Executive Briefng
Executive Summary: The FASB has issued ASU No. 2011-08 , Testing Goodwill for Impairment, which amends FASB ASC 350-20 to allow-
not require-an initial assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is le
than its carrying amount for purposes of determining whether to perform the step one of the two-step impairment test.
Under the new rules, the calculation of a reporting unit’s fair value is not required unless, as a result of the qualitative assessment, it is more lik
than not that fair value of the reporting unit is less than its carrying amount. The new rules do not impact the manner in which the eventual calcu
tion is performed.
www.SingerLewak.com | 877.754.4
NEW RULES
Following is a discussion of the amendments to FASB ASC 350-20 .
•Companiesmaychoosetheoptionofassessingqualitativefactorstodeterminewhetheritisnecessarytoperformt
rststepinthetwo-stepimpairmenttestingprocess.
•Relevanteventsandcircumstancesmustbetakenintoaccountindeterminingwhetherornotitismorelikelythann
thatimpairmentexists.
•Inevaluatingthesecircumstances,greaterweightshouldbeassignedtoeventsandcircumstancesthatmostaffect
reportingunit’sfairvalueorthecarryingamountsofitsassets.
•Relevanteventsandcircumstancesincludethefollowing:
•Macroeconomicconditions(economicfactors,limitationsonaccesstocapital,uctuationsinforeignexchan
rates, etc...)
•Industryandmarketconditions(Deteriorationintheenvironmentinwhichtheentityoperates,increased
competition,achangeindemandfortheentity’sproductsorservices,regulatoryorpoliticaldevelopments,or
declineinmarketdependentmultiplesormetricseitherrelativetotheentity’speersorinabsoluteterms)
•Changesinthecostsofproductsortoproduceproducts
•Decliningnancialperformance
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8/4/2019 Oct 2011: Qualitative Evaluation To Determine The Necessity of Step 1 of The Goodwill Impairment Test
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•Otherentity-specicevents
•Sustaineddeclineintheentity’sshareprice
•Positiveandmitigatingfactors,events,andcircumstances
•Ifapplicable,basedonarecentfairvaluecalculation,thedifferencebetweenfairvalueandthecarryingamo
oftherepor tingunit,subjecttolimitationsastotimeandimpact
•Otherfactorsasappropriate
•Afterassessingthequalitativefactors,ifitisdeterminedthatitismorelikelythannotthatthereportingunit’scarryi
amountisgreaterthanitsfairvalue,Step1oftheimpairmenttestisrequiredtobeperformed,oritisnotmorelikely
thannotthattheunit’scarryingamountdoesnotexceeditsfairvalue,thenStep1(andthusalsoStep2)ofthe
impairmenttestneednotbeperformed.
•Theamendedguidancedoesnotchangethecurrentrequirementsthatgoodwillofareportingunitshouldbetestedf
impairmentbetweenannualtestsifeventsoccurorcircumstanceschangethatwouldmorelikelythannotreduce
thefairvalueoftheunitbelowitscarryingamount,orforareportingunitwithazeroornegativecarryingamount,Step
oftheimpairmenttestmustbeperformedonanannualorinterimbasisifeventsorcircumstancesindicatethatitis
morelikelythannotthatagoodwillimpairmentexists.
EFFECTIVE DATE
Theamendedguidanceiseffectiveforannualandinterimgoodwillimpairmenttestsperformedforscalyearsbeginningafter
December15,2011.Earlyadoptionisallowed.
Jim Pitrat:
Practice LeaderAssurance & Advisory
Harmeet Singh:
Business Combinations Subject Matter Expert
Los Angeles, Silicon Valley
Gale Moore:
949.261.8600
Business Combinations Subject Matter Expert
LosAngeles,Orange County, San Diego
FOR FURTHER INFORMATION, PLEASE CONTACT ONE OF THE FOLLOWING: