Preparing for Year End: Common Questions About Goodwill Impairment

Posted on Sep 26, 2013

As we rapidly approach the fourth quarter of 2013 and the impending year end for many clients, we start to get questions on many of the facets of financial statement reporting that may be ignored in the first part of the year. One question that we receive somewhat frequently during the year-end financial reporting work is: how do we test goodwill for impairment?

The guidance on this became much less cumbersome effective for periods after December 15, 2011 which was (finally!) some good news from the Financial Accounting Standards Board (FASB).

Here are some common questions we get in relation to goodwill:

  • I acquired an entity 5 years ago and recorded goodwill. What do I do now? The new standard modifies the previous standard of evaluating the goodwill value by allowing companies to qualitatively assess whether goodwill is impaired before taking any quantitative action. If this qualitative assessment concludes that fair value is greater than the carrying amount, no further action is necessary and it can greatly reduce time and costs associated with annual goodwill impairment testing.
  • What do the qualitative steps encompass and what factors should be considered? The FASB’s guidance lists the following examples of events and circumstances that may be considered in a company’s qualitative analysis of goodwill for financial statement reporting macroeconomic conditions purposes:
    • Industry and market considerations
    • Cost factors
    • Overall financial performance
    • Other relevant entity-specific events
    • If applicable, a sustained decrease in share price
  • I addressed the above and evaluated my reporting unit throughout the year. What now? To successfully prepare for your year-end financial reporting requirements, draft a memo based upon knowledge of the entity and the responses to the above guidance as it pertains to the goodwill on your books.

If there are any factors, risks, or indications that there have been changes in the reporting entity during the year that are negative based on these responses, reach out to your accountant or Clark Nuber for additional guidance on evaluating goodwill at the end of the year as there may be additional steps necessary in the impairment test. However, for most companies, the annual goodwill impairment test became much less of a bear in recent years than it has been in the past.

After evaluating and documenting your knowledge in the steps above, you have checked off one thing on your list in the annual year end close!

Jennifer Valente Color High Res

Posted by Jennifer Valente

Jennifer Valente is a manager in Clark Nuber’s audit and assurance practice. Contact an audit and assurance professional.

© Clark Nuber PS and Developing News, 2013. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Clark Nuber PS and Developing News with appropriate and specific direction to the original content.

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