Note: Due to the issuance of certain new accounting literature, changes in the status of ongoing projects during the past year, or evolution of practice, the following updates to the existing cases should be noted.
Case 03-5a Part I: Trademark
Subsequent to the release of the Exposure Draft issued by the FASB and IASB in June 2010 the Boards received a number of comments and is currently reviewing and analyzing these comments. A revised draft of the Exposure Draft is expected in Q3 of 2011. We encourage users of this case study to follow this project and review the FASB’s and IASB’s Web site for updates.
Case 04-9: Healthcare Depot
On April 22, 2011, the FASB issued a Proposed Accounting Standards Update, IntangiblesGoodwill and Other (Topic 350): Testing Goodwill for Impairment. Under the proposed ASU, entities testing goodwill for impairment would have the option of performing a qualitative assessment before calculating the fair value of the reporting unit (i.e., step 1 of the goodwill impairment test). If entities determine, on the basis of qualitative factors, that the fair value of the reporting unit is more likely than not greater than the carrying amount, a quantitative calculation would not be needed. The proposal would not change how goodwill is calculated or assigned to reporting units, nor would it revise the requirement to test goodwill annually for impairment. In addition, the proposed guidance does not amend the requirement to test goodwill for impairment between annual tests if events or circumstances warrant; however, it does revise the examples of events and circumstances that an entity should consider. These circumstances include: • 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 Industry and market considerations such as a deterioration in the environment in which an entity operates, an increased competitive environment, a decline (both absolute and relative to its peers) in market-dependent multiples or metrics, a change in the market for an entity’s products or services, or a regulatory or political development Cost factors such as increases in raw materials, labor, or other costs that have a negative effect on earnings Overall financial performance such as negative or declining cash flows or a decline in actual or planned revenue or earnings
Other relevant entity-specific events such as changes in management, key personnel, strategy, or customers; contemplation of bankruptcy; or litigation Events affecting a reporting unit such as a change in the 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 (both absolute and relative to its peers) in share price.
These factors are not meant to be all-inclusive. Entities should also consider: • • • The significance and adversity of each factor relative to the fair value of the reporting unit Positive factors and mitigating circumstances that may affect the analysis If the entity has a recent fair value calculation for the reporting unit, whether the fair value of the reporting unit exceeded its carrying amount by a substantial margin The factors in their totality. No one factor is meant to be a determinative event that triggers a quantitative calculation. Further, “the existence of positive and mitigating events and circumstances is not intended to represent a rebuttable presumption that an entity should not perform the first step of the goodwill impairment test.”
The proposed ASU would also amend the guidance on...