Goodwill Impairment Testing- SFAS 142

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Statement of Financial Accounting Standards (SFAS) 142 requires that companies test their recorded goodwill for impairment at least annually, or on an interim basis if an event or circumstances indicate that the goodwill may be impaired.

On the surface, this requirement seems straightforward. However, when goodwill represents a material component of the financial statements, impairment testing can create significant accounting and reporting risks and the prospect of a challenge from the SEC.

Even minor changes in assumptions and calculations can have a major impact on an impairment test. For example, the rules require that goodwill be tested for impairment at a level of a “reporting unit,” which companies typically self-define based on how their senior managers view and consider their results. If a company defines its reporting units broadly, it may find no goodwill impairment. But, if the reporting units are defined more narrowly, the company might see a goodwill impairment and a material change to its financial statements.

The result: Apparently minor changes in a company’s internal financial reports can have a profound impact on its external financial results.

Because of the significant dollar amounts involved and the fact that every assumption and calculation is subject to scrutiny and challenge, clients rely on Financial Intelligence for a complete solution for their periodic goodwill impairment testing. Because we are experts in both accounting and valuation, we are able to guide our clients through these complex accounting and valuation issues with confidence, prepare the necessary valuations correctly the first time, and ensure that the valuations survive potential rigorous scrutiny from auditors and regulatory agencies.

We invest the time and energy to understand the relevant details of our clients' business, market, past performance and future expectations; we maintain rigorous quality control over our analyses, calculations and documentation; we ensure that our written reports comply with all relevant accounting standards, SEC reporting requirements, AICPA practice guides and IRS regulations; and we communicate throughout the process with our clients to ensure that there are no surprises.