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Journal entry — AICPA issues accounting and valuation guide on goodwill impairment

Published on: Nov 15, 2013

The AICPA recently issued a new Accounting and Valuation Guide, Testing Goodwill for Impairment. The publication’s nonauthoritative guidance and illustrations are intended to help preparers, auditors, and valuation specialists with accounting and valuation considerations associated with testing goodwill for impairment. The guide also discusses challenges that might be encountered in the performance of the qualitative assessment and the first step of the two-step goodwill impairment test (in which the fair value of the reporting unit is compared to its carrying amount).

As noted on the AICPA’s Web site, topics covered in the guide include the following:

  • 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. This guide also provides an illustration of the second step of the two-step goodwill impairment test.
  • 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: This guide includes an appendix which 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.

The guide, which can be purchased on the AICPA’s Web site, is available on Technical Library.

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