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Your company may have goodwill recorded on the books as the result of a business acquisition or combination where the purchase price exceeded the value of the assets acquired.
Accounting for goodwill subsequent to the acquisition of the business has evolved over the years. In 1970, APB Opinion 17 required systematically amortizing goodwill over a period not to exceed 40 years, then in 2001 SFAS 142 (now ASC 350) replaced the systematic amortization of goodwill with an annual assessment to determine if goodwill has been impaired by first comparing the fair value of an entity with its carrying amount, including goodwill. If the fair value of a reporting unit is less than its carrying amount, then you are to measure the amount of impairment loss, if any.
In response to concerns over the cost and complexity of testing goodwill for impairment, the Financial Accounting Standards Board (FASB) has approved a revised accounting standard intended to simplify the process.
The amendment will allow an entity to assess qualitative factors to determine whether events or circumstances lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the events or circumstances, an entity determines the fair value is more than its carrying amount, then performing the two-step quantitative impairment test would be unnecessary.
The amendment will be effective for goodwill impairment tests performed for fiscal years beginning after December 15, 2011; however, early adoption will be permitted.
The FASB expects to issue a final Accounting Standards Update in September 2011.
Please call us at (616) 458-1835 or email us at bshmail@bshcpa.com, if you have any questions concerning the revised standard and how it may impact your company.
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