The Financial Reporting Executive Committee (FinREC) of the American Institute of CPAs (AICPA) has expressed its support for the Financial Accounting Standards Board’s (FASB) proposal to eliminate Step 2 from the goodwill impairment test, and has encouraged the Board to continue to explore ways to further simplify the test.
The comments came in a July 13 letter in response to the Board’s proposed Accounting Standards Update (ASU), “Intangibles – Goodwill and Other (Topic 350) – Simplifying the Accounting for Goodwill Impairment.”
The letter stated, “FinREC supports the Board’s objective of reducing the cost of the subsequent accounting for goodwill while maintaining the usefulness of the information provided to users of financial statements. FinREC believes that the proposed amendments to eliminate Step 2 from the goodwill impairment test will help to achieve this objective. However, we encourage the Board to continue to explore ways to further simplify the goodwill impairment test.”
Step 2 includes determining the implied fair value of goodwill and comparing it with the carrying amount of that goodwill. Under Step 2 an entity must perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in a purchase price allocation for an acquired business. Instead, under the proposed amendments, an entity would perform its annual, or any interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount.
FinREC also strongly encouraged FASB to add a project to its agenda to consider additional changes to the subsequent accounting for goodwill for public companies and not-for-profit (NFP) entities.
The letter stated, “Acknowledging the mixed feedback that FASB has received to date related to public companies, we believe, based on our preliminary outreach, that the next phase of this project will demonstrate to FASB the very strong support from the NFP community for further goodwill simplification (including the possibility of allowing or requiring amortization) without reducing financial reporting relevance. Therefore, FinREC expects that the next phase of this project, at a minimum, would concentrate on NFPs.”
The remainder of FinREC’s comment letter responded to several questions posed in the proposed ASU.