How many of you have recently had to assess for impairment, and how many after the first year of acquisition, faced a possible impairment write-off? Were you able to avoid a first year write off arguing the first year being a transition year, is not representative and would be premature for an impairment recognition? How can you convince your auditors that impairment would be premature?
Accounting for Goodwill Impairment ASC 350-20 and the Sept. 2011 ASU
To impair or not to impair goodwill will depend how you make the right argument with the auditors. I can provide you with some thoughts to consider. Please note that these are just the broad guidelines - however, once you do your analysis, please free to contact me at "sunil.
Some factors to consider:
1. Did you consider the - ASU 2011-08—Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment. If you plan to early adopt this ASU, it provides an option to the companies to not go ahead and do a detailed goodwill testing. Even if you do not plan to early adopt this ASU, read the various qualitative factors and apply them to your specific situation. Essentially this ASU is similar to Step 0, i.e. to be applied before Step 1.
Other factors to consider:
2. Date of acquisition of the company:
When the new company was acquired? If the company was acquired within the last few months of year-end, you can most certainly argue no write-off is required as very short time frame.
However, if the company was acquired in say January and you are reporting as of December, you will need to do some additional analysis. You can review the valuation model that you had used to record goodwill and look at the underlying assumptions to see if there has been any change due to economy or other factors.
3. If the underlying assumptions in the original valuation model have changed, you might also have some flexibility to re-open the purchase price equation and adjust the goodwill amount.
I do hope that I have addressed some of your concerns - so you can enjoy the holiday season! :)