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The Financial Accounting Standards Board (FASB) has released two Accounting Standards Updates (ASU). A summary of these items is provided below.
ASU No. 2011-08, Intangibles Goodwill and Other (Topic 350): Testing Goodwill for Impairment
This ASU was drafted in an effort to reduce the complexities and costs associated with performing the first step of the two-step goodwill impairment test, as required under Topic 350. This is accomplished by allowing entities to first assess qualitative factors to determine whether it is more likely than not (which is defined in the ASU as having a likelihood of more than 50 percent) that the fair value of an entity s goodwill is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test.
Therefore, an entity is not required to calculate the fair value of goodwill as part of the entity s annual impairment testing unless the entity determines, through its qualitative analysis, that it is more likely than not that its fair value is less than its carrying amount. If an entity determines that it is more likely than not that the fair value of its goodwill is less than the carrying amount, then it is required to perform step one of the two-step goodwill impairment test and calculate the fair value of the goodwill and compare it to its carrying amount. If the calculated fair value of the goodwill is less than the carrying value, then the entity is required to perform the second step in the goodwill impairment test which requires the determination of the amount of impairment loss, if any.
This ASU provides examples of the events and circumstances that an entity should consider between annual impairment tests to assist in determining whether it is more likely than not that the fair value of the entity s goodwill is less than its carrying amount at the time the next assessment is performed. Specific examples of the events and circumstances provided in the ASU include the following:
* Macroeconomic conditions such as a deterioration in general economic conditions, limitations on accessing capital, fluctuations in foreign exchange rates, or other developments in equity and credit markets.
* Cost factors such as increases in raw materials, labor, or other costs that have a negative effect on earnings and cash flows.
* Overall financial performance such as negative or declining cash flows or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods.
* Other relevant entity-specific events such as changes in management, key personnel, strategy, customers, contemplation of bankruptcy, or litigation.
* Events affecting a reporting unit such as a change in the composition or carrying amount of its net assets, a more likely than not expectation of selling or disposing all or a portion of a reporting unit, the testing for recoverability of a significant asset group within a reporting unit, or recognition of a goodwill impairment loss in the financial statements of a subsidiary that is a component of a reporting unit.
* If applicable, a sustained decrease in share price (consider in both absolute terms and relative to peers).
The amendments in this ASU apply to both public and nonpublic entities that have goodwill reported in their financial statements, and are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted.
ASU No. 2011-09, Compensation Retirement Benefits Multiemployer Plans (Subtopic 715-80): Disclosures about an Employer s Participation in a Multiemployer Plan
The amendments in this ASU are designed to give greater transparency in the financial reporting for multiemployer pension plans by requiring expanded disclosures which are designed to better document the commitment an employer has to a multiemployer plan and the potential future cash flow requirements the employer could have based on their participation in the plan. The amendments in this ASU apply to nongovernmental entities that participate in multiemployer plans. For public entities, the ASU will be effective for fiscal years ending after December 15, 2011, with early adoption permitted. For nonpublic entities, the ASU will be effective for annual periods ending after December 15, 2012, with early adoption permitted. The amendments should be applied retrospectively for all prior periods presented.
To view these ASUs in their entirety, please click here.
For more information, please contact the experts listed below at PYA, (800) 270-9629.
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