Accounting and Valuation Guide: Testing Goodwill for Impairment

Introduction .01 -.05

1 Concepts and Application of Financial Accounting Standards Board Accounting Standards Codification 820 .01 -.28

General Concepts of FASB ASC 820 .02 -.05

Applying FASB ASC 820 Valuation Techniques to Reporting Units .06 -.18

Income Approach .09 -.11

Market Approach .12 -.16

Asset Approach .17 -.18

Applying FASB ASC 820 Framework to Reporting Units .19 -.28

Determine the Unit of Account .20

Determine the Valuation Premise .21 -.23

Identify the Potential Markets .24 -.25

Determine Market Access .26

Apply the Appropriate Valuation Approaches .27

Determine the Fair Value .28

2 Accounting Considerations When Testing Goodwill for Impairment .01 -.67

Introduction .01 -.04

Two-Step Goodwill Impairment Test .05 -.09

Identification of Reporting Units .10 -.18

Assigning Assets and Liabilities to a Reporting Unit .19 -.30

Assigning Assets and Liabilities to a Reporting Unit—Additional Considerations .31 -.37

Debt Recognized at the Corporate Level .31

Deferred Taxes Related to Assets and Liabilities of a Reporting Unit .32

Cumulative Translation Adjustment .33

Contingent Consideration Arrangements .34 -.37

Assigning Recorded Goodwill to Reporting Units .38 -.39

Assigning Recorded Goodwill to Reporting

Units—Additional Considerations .40 -.50

Reporting Units With Noncontrolling Interest .40 -.43

Reorganization of Reporting Structure .44

Goodwill Impairment Testing by a Subsidiary .45 -.48

Disposal of All or a Portion of a Reporting Unit .49 -.50

When to Test Goodwill for Impairment .51 -.57

Changing Annual Test Date .52 -.53

Testing for Impairment Between Annual Test Dates .54 -.55

2 Accounting Considerations When Testing Goodwill for Impairment—continued Testing Goodwill Remaining in a Reporting Unit Upon Disposal of a Portion of a Reporting Unit .56

Order of Impairment Testing .57

Previous Fair Value Measurements of a Reporting Unit .58

Step 2 of Goodwill Impairment Test .59 -.64

Attributing Goodwill Impairments to the Parent and the Noncontrolling Interest .65

Disclosure Requirements .66 -.67

Disclosure Requirements of Accounting Principles Generally Accepted in the United States of America .66

SEC Disclosure Requirements .67

3 Qualitative Assessment .01 -.26

Introduction .01 -.02

Identifying Inputs and Assumptions That Most Affect Fair Value .03 -.06

Identifying Relevant Events and Circumstances .07 -.13

Weighing Identified Events and Circumstances .14 -.17

Concluding on the Totality of Events and Circumstances .18 -.21

Other Considerations .22 -.26

4 Measuring Fair Value of a Reporting Unit .01 -.94

Introduction .01 -.06

Market Participant Assumptions .07 -.08

Effects of Noncontrolling Interest When Measuring the Fair Value of the Reporting Unit .09 -.16

Valuation Techniques .17 -.20

Using the Income Approach to Estimate Fair Value of a Reporting Unit .21 -.42

Treatment of Risk .22 -.29

Measuring Final Cash Flow Amount or Terminal Value .30 -.33

Adjustments to Prospective Financial Information .34

Income Tax Considerations: Taxable Versus Nontaxable Determination .35 -.42

Using the Market Approach to Estimate Fair Value of a Reporting Unit .43

Considerations in Applying the Guideline Public Company Method .44 -.72

Identification of Guideline Public Companies .44 -.47Chapter Paragraph

4 Measuring Fair Value of a Reporting Unit—continued Number of Guideline Companies Selected for Comparison .48

How to Calculate Multiples and Which Multiples to Use .49 -.57

Adjustments to Guideline Public Company Multiples to Enhance Comparability .58

Adjustments to Subject Reporting Unit Financial Data .59

Elimination of Multiples That Are Not Meaningful .60 -.61

How to Select Multiples to Apply to the Subject Reporting Unit .62 -.65

Weighting of Multiple Type .66 -.67

Enterprise Versus Equity Level Multiples .68

Issues of Noncontrolling Versus Controlling Interest .69 -.70

Cash and Nonoperating Assets .71 -.72

Considerations in Applying the Guideline Company Transactions Method .73 -.78

Limitations on Availability of Data .74

Assessing Relevant Time Period for Guideline Company Transactions .75

Number of Guideline Company Transactions Selected for Comparison .76

How to Select Multiples to Apply to the Subject Reporting Unit .77

Noncontrolling Versus Controlling Interest .78

Comparison of Fair Value Measurements to External Fair Value Indications .79 -.83

Comprehensive Example .84 -.94

Overview .84 -.85

Step 1 of Goodwill Impairment Test .86 -.91

Step 2 of Goodwill Impairment Test .92 -.93

Schedules .94

Appendix

A Disclosure of Goodwill and Goodwill Impairment Testing

B Table of Responsibilities of Management and the External Valuation Specialist

Glossary

Index of Pronouncements and Other Technical Guidance

Subject Index

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