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VSCPA Comments on FASB Goodwill Impairment Proposal

September 30, 2018

July 11, 2016

Technical Director

File Reference No. 2016-230

Financial Accounting Standards Board

401 Merritt 7, PO Box 5116

Norwalk, CT 06856-5116

 

Submitted via email to [email protected]

 

Re: Intangibles — Goodwill and Other (Topic 350) — Simplifying the Accounting for Goodwill Impairment

 

Dear Technical Director:

 

The Virginia Society of CPAs (VSCPA) Accounting and Auditing Advisory Committee has reviewed the proposed Exposure Draft, Intangibles — Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment issued by the Financial Accounting Standards Board (the Board). The VSCPA is a leading professional association dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. VSCPA membership consists of more than 12,000 individual members who actively work in public accounting, private industry, government and education. We appreciate the work the Board has undertaken on this effort and the opportunity to respond to this Exposure Draft.

 

The VSCPA offers the following comments related to the “Questions for Respondents” section of the proposal:

 

Question 1 — Do you agree with the proposed amendments to eliminate Step 2 from the goodwill impairment test? Why or why not?

 

We support the Board’s proposed amendments to eliminate Step 2 from the goodwill impairment test. The elimination of Step 2 would serve to simplify the process for determining potential goodwill impairment.

 

Question 2 — Should the requirement to perform Step 2 of the current goodwill impairment test be retained as an option? Why or why not? If the use of Step 2 is optional, should an entity be allowed to apply the option by reporting unit or should it be a policy election at the entity level applicable to all reporting units?

 

We do not agree with the Board’s position to allow Step 2 of the current goodwill impairment test to be retained as an option. Allowing Step 2 as an option does not serve to reduce complexity and could promote inconsistent treatment for similar transactions that would affect comparability for the users of financial statements.

 

Question 3 — Do you agree with the proposed amendments to require all entities to apply the same one-step impairment test to all reporting units, including those with zero or negative carrying amounts? Explain your response?

 

We agree with the Board’s position to require all entities to apply the same one-step impairment test to all reporting units, including those with zero or negative carrying amounts. This should allow for less complexity and costs when applying subsequent measurements of goodwill. We acknowledge that there could be instances whereby the application of a two-step impairment test could result in an impairment loss for a reporting unit with a zero or negative carrying amount. However, we agree with the Board that there are few cases found where a reporting unit has zero or negative carrying amounts.

 

 Question 4 — Should entities with reporting units with zero or negative carrying amounts be required to disclose the existence of those reporting units and the amount of goodwill allocated to them? Why or why not? Are there additional disclosures that would provide useful information to users of financial statements?

 

We agree with the Board’s position to require disclosures for entities with reporting units with zero or negative carrying amounts and the amount of goodwill allocated to them. The additional disclosures should serve to provide users of financial statements with information in order to evaluate goodwill assigned to a particular reporting unit.

 

Question 5 — Should the guidance on deferred income tax considerations when determining the fair value of a reporting unit outlined in paragraphs 350-20-35-25 through 35-27 and illustrated in Example 1 and Example 2 be retained, or should this Subtopic rely on the fair value guidance in Topic 820, Fair Value Measurement? If the guidance on the tax structure is retained, what, if any, amendments are necessary to address the potential difference in the impairment charge calculated under the proposed amendments, depending on which tax structure is used in calculating the fair value of the reporting unit?

 

We agree that the guidance on deferred income tax considerations when determining the fair value of a reporting unit as outlined in paragraphs 350-20-35-25 through 35-27 should be retained as it should assist in the determination of the applicability of a taxable or nontaxable transaction when determining the fair value of a reporting unit.

 

Question 6 — Do you agree that the proposed guidance to remove Step 2 from the goodwill impairment test should be applied prospectively? Should there be specific transition guidance for companies that previously adopted the goodwill accounting alternative for private companies in current GAAP but decide to adopt this proposed guidance after it becomes effective?

 

We agree that the proposed guidance to remove Step 2 from the goodwill impairment test should be applied prospectively. We also recommend that consideration be given to provide specific transition guidance for companies that previously adopted the goodwill accounting alternative for private companies.

 

Question 7 — How much time would be necessary to adopt the amendments in this proposed Update? Should early adoption be permitted? Would the amount of time needed to apply the proposed amendments by entities other than public business entities be different from the amount of time needed by public business entities?

 

We believe the time necessary to adopt the amendments in this proposed Update would be minimal and consideration should be given for adoption one year from the issuance of the final Update with early adoption being permitted.

 

Question 8 — Would the proposed amendments meet the Board’s objective of reducing the cost of the subsequent accounting for goodwill while maintaining the usefulness of the information provided to users of financial statements? Why or why not?

 

We agree that the proposed amendments would meet the Board’s objective of reducing the cost of the subsequent accounting for goodwill while maintaining the usefulness of the information provider to users of financial statements.

 

Question 9 — Are there additional changes that should be made to the subsequent accounting for goodwill to meet this objective, including changes that might be considered in Phase 2 of the Board’s project?

 

We have not identified any additional changes that should be made to the subsequent accounting for goodwill project.

 

Question 10 — Are there any unintended consequences resulting from the improvements to the Overview and Background Sections of the Subtopics (discussed in Part II of the proposed amendments)?

 

We have not identified any unintended consequences that may have resulted from the improvements to the Overview and Background Sections of the Subtopics discussed in Part II of the proposed amendments.

 

We support the Board’s efforts to improve the guidance on simplifying the accounting for goodwill impairment which should result in less cost and complexity with regards to implementation issues that could arise when entities implement the new revenue standard.

 

Again, the VSCPA appreciates the opportunity to respond to this Exposure Draft. Please direct any questions or concerns to VSCPA Vice President, Advocacy Emily Walker at [email protected] or (804) 612-9428.

 

Sincerely,

 

Charles M. Valadez, CPA, CGMA, CITP

Chair

2016–2017 VSCPA Accounting & Auditing Advisory Committee

Charles Valadez, CPA — Chair

Joshua Keen, CPA — Vice Chair

Zachary Borgerding, CPA

Michael Cahill, CPA

Tamara Greear, CPA

M. James Hartson, Jr., CPA

Brett Simer, CPA

Ashleigh Smith, CPA

Kulthida Strey, CPA

Forrest Wagoner II, CPA

Mulugeta Wondimu, CPA

 
 

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