CFOs Like New Goodwill Impairment Shortcut

CFOs seem likely to make heavy use of FASB’s new “qualitative” option for impairment testing.



Article by David M. Katz of CFO.com


Offered the chance to enable their company to avoid the currently complex calculations of goodwill-impairment testing, corporate finance executives will seize the opportunity in droves, a soon-to-be-released survey suggests.

Last summer Duff & Phelps and the Financial Executives Research Foundation, the parent organization of Financial Executives International, asked a group of CFOs, controllers, treasurers, and other corporate finance executives if their company would take advantage of a proposed Financial Accounting Standards Board shortcut. Under the FASB plan, companies could bypass the current two-step quantitative goodwill-testing process by making — and passing — a “qualitative” assessment of their impairments.

The two hundred FEI members who responded did so resoundingly in the affirmative. Sixty-nine percent of those working for private companies and 81% at public companies expect their employers to take advantage of the option for some or all of their reporting units.

They will now get their chance: on September 15, FASB stated a final version of its rule that companies will no longer be required to calculate the fair value of their reporting units if they judge, based on a qualitative assessment, that it’s more likely than not that their fair values are more than their book values. (Goodwill impairment occurs when the fair value of goodwill in a company’s reporting unit drops below the unit’s book value, also known as its “carrying amount.”)

The new option will be effective for annual and interim goodwill-impairment tests performed for fiscal years starting after December 15, and early adoption is permitted.

Previous FASB guidance required a company to test for goodwill impairment at least once a year using a two-step process. In step one, the entity had to figure out the fair value of a reporting unit and compare the fair value with the unit’s carrying amount. If the fair value were less than the carrying amount, then the company had to perform a second step to gauge the amount of the impairment loss, if there any.

In the new guidance, FASB says a company choosing to make a qualitative assessment must base it on “such events and circumstances” as macroeconomic conditions, industry and market conditions, raw materials and labor costs, and “overall financial performance such as negative or declining cash flows.”

Gary Roland, a managing director at Duff & Phelps, says he is surprised that a higher percentage of private-company finance executives didn’t say their company would take advantage of the shortcut. After all, FASB first came up with the idea in response to a push from private companies to provide them with a simpler, cheaper testing process.

Nevertheless, Roland had expected a strong positive response from companies across the board. “There’s no surprise that certain entities would want to take advantage of this because they weren’t happy with the fees,” he says.

The survey, however, recorded just the hopes of finance executives and is only a partial reflection of how many companies will actually take advantage of the shortcut, according to the valuation consultant. “It still could be a difficult proposition,” depending upon how narrowly companies passed impairment tests in prior years and how stringent auditors are in allowing companies to take the shortcut, he adds.

Big Shot Investors Say No to IFRS

By Emily Chasan of WSJ

When SEC Chairman Mary Schapiro said in June that investors aren’t clamoring for International Financial Reporting Standards, she may have been understating things… a bit. Now, some of the biggest U.S. investor groups are letting the SEC know in no uncertain terms that it should postpone its decision on IFRS and even stop the convergence process between U.S. GAAP and IFRS.

In comment letters to the SEC this week, some big investors and analyst groups had some scathing words about IFRS, claiming, among other things, that the International Accounting Standards Board isn’t independent enough from political interference to set accounting rules for the United States.

Capital Research and Management Co, which manages over $1 trillion, wrote that U.S. GAAP was “clearer, more effective and more advanced” than IFRS in providing the information it needs to make investments. CRMC Chairman Paul Haaga wrote in the letter:

While we support the idea of a consistent set of high quality accounting standards for companies worldwide, unfortunately we do not believe IASB has been effective in achieving this objective. Moreover, IASB’s ability to achieve this objective has been gravely diminished by political influence.

CRMC, which is the investment advisor to the American Funds mutual funds, said it doesn’t expect to benefit from the more comparable reporting IFRS is supposed to provide because the standard is applied so inconsistently around the world, and urged the SEC to retain U.S. GAAP. It also said the convergence process between U.S. accounting rule makers isn’t working and should be stopped.

Investors, analysts, and others, who use financial statement, are the purported beneficiaries of a switch to IFRS, as a single set of accounting rules should make it easier to compare publicly-traded companies around the world. Many CFOs are on record saying they would bear the cost of an IFRS switch if they think investors would benefit.

But even the CFA Institute, which represents over 100,000 portfolio managers, investment analysts and advisors throughout the world expressed doubts, saying it would be “premature” for the SEC to inject IFRS into the U.S. financial system. The CFA Institute said its continued support for IFRS is not unconditional, and that the International Accounting Standards Board needs to ensure its independence and more consistent application of its rules before U.S. companies are required to use them.

After abandoning an earlier plan that would have had U.S. companies using IFRS as soon as 2014, the SEC has said it would make a decision this year about whether companies in the U.S. should move toward the international standard, which is used in more than 100 other countries around the globe.

Top Ten Most Influential Accountants

A Top Ten list from a list of 100 of the most influential accountants in the U.S., as compiled by Accounting Today.


1. Barry Melancon, President and CEO, American Institute of CPAs
2. Mary Schapiro, Chair, Securities and Exchange Commission
3. Leslie Seidman, Chair, Financial Accounting Standards Board
4. Douglas Shulman, Commissioner, Internal Revenue Service
5. James Doty, Chair, Public Company Accounting Oversight Board
6. James Kroeker, Chief accountant, Securities and Exchange Commission
7. James Metzler, Vice President of small firm interests, American Institute of CPAs
8. Hans Hoogervorst, Chair, International Accounting Standards Board
9. Mark Koziel, Vice President of firm services & global alliances, American Institute of CPAs
10. Gary Boomer, CEO, Boomer Consulting
See if you made the list of 100 by looking here.