Financial Intelligence helps corporations comply with Statement of Financial Accounting Standards (SFAS) 142 (Goodwill and Other Intangible Assets) that require that they test their reported goodwill and intangible assets for impairment at least annually, and between annual tests if management has reason to believe that changing circumstances may have caused an impairment.

Impairment Testing

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Statement of Financial Accounting Standards (SFAS) 142 (Goodwill and Other Intangible Assets) requires that companies test their reported goodwill and intangible assets for impairment at least annually, and between annual tests if management has reason to believe that changing circumstances may have caused an impairment.

The amount of recorded goodwill is often large. Because even small changes in judgment can have a material effect on reported earnings, the SEC has made it clear that it takes such tests seriously. In particular, the SEC has said that it pays close attention to, and may potentially challenge, the way a corporation determines its segments and reporting units for testing purposes. For example, in November 2006, the Chief Accountant stated:

On a few occasions, the staff has requested copies of all reports furnished to the chief operating decision-maker if the reported segments did not appear realistic for management’s assessment of a registrant’s performance or conflicted with that officer’s public statements describing the registrant. The staff also has reviewed analysts’ reports, interviews by management with the press, and other public information to evaluate consistency with segment disclosures in the financial statements.

Financial Intelligence helps corporations effectively navigate these impairment rules by forming defensible conclusions that satisfy the most demanding audit situation. Our accounting and valuation experts help clients:

  • Identify segments and reporting units for testing, thereby
    reconciling the conclusions to the requirements of SFAS 131
    (Disclosures about Segments of an Enterprise and Related
    Information).
  • Identify and address inevitable changes in facts and circumstances
    between testing periods.
  • Allocate goodwill to reporting units based on expected benefits
    from, or changes to, anticipated synergies.
  • Determine the fair value of the reporting unit, including any
    previously unidentified intangible assets (Step 1 of the SFAS 142
    impairment test).
  • Determine the implied value of the goodwill or intangible asset
    and the amount of the impairment, if any (Step 2 of the SFAS 142
    impairment test).
  • Address differences between US GAAP and IFRS

Corporations rely on Financial Intelligence for a complete solution to these periodic impairment tests. Because we are experts in both accounting and valuation, we are able guide our clients through these issues with confidence, prepare the necessary valuations thoroughly, and ensure that they survive potential rigorous scrutiny from auditors and regulatory agencies—the first time. In each case, we work closely with management (and auditors and/or counsel when appropriate) to determine the proper accounting treatment. We also prepare position papers to document our conclusions thoroughly.

Beyond accounting theory and related position papers, we provide clients with detailed financial analyses to explain the impact of accounting and valuation decisions on both historical and prospective financial results.

Our proven experience in solving extremely complex and diverse revenue recognition issues allows us to resolve issues and form defensible conclusions; document conclusions to satisfy demanding audit situations; and draft disclosures and complete the SEC filings quickly.