Testing Goodwill for Impairment - Accounting and Valuation Guide
This guide provides accounting and valuation guidance for impairment testing of goodwill. Specifically, it focuses on practice issues related to the qualitative assessment and the first step of the two-step test.
This resource is a valuable tool for auditors, accountants and valuation specialists seeking an advanced understanding of the accounting, valuation, and disclosures related to goodwill impairment testing (including the qualitative assessment). It is also a vital resource for preparers of financial statements of public and private companies that follow FASB guidance on goodwill.
Covered topics include:
- Fair Value: This guide discusses measuring the fair value of a reporting unit in accordance with FASB ASC 820, Fair Value Measurement, and illustrates the valuation techniques often utilized for this purpose.
- Practice Issues: This guide addresses such issues as identifying reporting units, assigning assets and liabilities to a reporting unit, treatment of shared assets and liabilities among reporting units, assigning recorded goodwill to reporting units, when to test goodwill for impairment, consideration of market participant assumptions, performing comparison to market capitalization, and more.
- New Qualitative Assessment: This guide describes the framework for performing the optional qualitative assessment, and includes an example that illustrates one approach for performing it.
- Comprehensive Example: This guide includes a comprehensive example of a valuation analysis used for performing steps 1 and 2 of the goodwill impairment test. In this example, the discount rate adjustment technique, the guideline public company method, and the guideline company transactions method are used to determine the fair value of a reporting unit. These are the most frequently used methods in practice when determining the fair value of a reporting unit in accordance with ASC 820.
- Disclosures: Provides example disclosures which meet the requirements contained in FASB ASC 350-20, as well as those of Item 303 of SEC Regulation S-K.