Goodwill Impairment: Preparer Survey Summary

By: PJ Patel

The Financial Accounting Standards Board (FASB) recently opened an Invitation to Comment (ITC) soliciting feedback on whether and how to further simplify the accounting for goodwill and intangible assets for public companies. Given VRC’s unique position as a user of financial statements and as a service provider working with “preparers” of financial statements, we polled our clients to get their thoughts on the current accounting for goodwill and intangible assets, and have summarized our findings below.

The responses to our survey, and especially the lack of homogeneity of the responses, were somewhat surprising. The
three clear takeaways are:

  1. Preparers prefer amortization of goodwill.
  2. But, preparers do not want to change how intangible assets are identified and valued in a business
    combination.
  3. Preparers are also split almost evenly on whether or not they believe the benefit of impairment
    testing exceeds the cost.

As we peel back the onion, we observe several other interesting trends from the respondents’ commentary:

  • Preparers want simplicity – new standards on leases and revenue recognition has caused a significant increase
    in time and effort.
  • When there are impairments, the work is significant – especially with Step 2 – and it creates a significant strain on senior management (CEO, CFO, etc.) Elimination of Step 2 of the goodwill impairment test goes a long way in reducing their effort.
  • Despite the headlines minimizing the benefits of impairments, preparers do believe that the process of testing for impairment causes companies to be more forthright with information and analyze transactions more diligently pre-deal, in order to minimize the likelihood of an impairment.

In conclusion, we believe the results show a disconnect exists. 80% of respondents favor further simplification. 85% say no change is needed in parsing intangibles. And, nearly equally split, 51% see no cost-benefit issue. We believe the disconnect is indicative of an ever-decreasing bandwidth encumbering preparers as a result of conforming to an exhaustive list of revised accounting standards.

Preparer Survey Respondent Demographics

 

 

 

 

 

 

 

 

 

 

 

Preparer Survey Responses

Additional (Out-of-the-Box) Preparer Comments

  1. Simplify the test. Possibly a trigger-based approach.
  2. Mixed model is an issue – organically generated intangible assets should be recognized, especially trademark and technology assets.
  3. Goodwill should be recognized at a higher level – segment or possibly at the entity level.
  4. Generally, there is a mixed understanding of the attributes of goodwill. Some think of the short-term attributes – workforce, synergies – others think of long-term benefits – risk reduction, growth, diversification.
Download the Infographic

Download the Infographic

View and print the complete infographic summary results of VRC’s Preparer Survey on the topic of accounting for goodwill and intangible assets for public companies.

+ Download

More Perspectives: Goodwill Impairment

The Current State of Goodwill & Impairments

A video discussion about corporate goodwill, goodwill impairment, and financial analysis techniques that aid in determining if a business combination is living up to performance expectations.

+ Watch

First, Do No Harm

Opinion: The FASB is soliciting feedback on whether and how to further simplify the accounting for goodwill and intangible assets for public companies. This may be setting off down a harmful course of accounting treatment.

+ Read More

Goodwill Impairment: User Survey Summary

To better understand the needs and views of “users” of financial statements, VRC surveyed financial analysts, a group mainly comprised of CFA charterholders, who conduct fundamental analysis on public companies.

+ Read the Summary

The Data Behind the Video

Download the detailed presentation, which includes the latest graphics, statistics, and purchase price allocation examples on goodwill, courtesy of Calcbench.

+ Download

VRC Provides Constructive Input to the FASB on Goodwill Impairment

Response to the FASB suggests a number of ways current impairment testing could be improved and streamlined.

+ In the News

Tracking Performance of Past Acquisitions

Courtesy of Calcbench, get their report that provides examples of how to track performance of past acquisitions including Intel’s purchase of Mobileye; the merger of Dow and DuPont; and 3M’s purchase of Scott Safety.

+ Download