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. 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. (Although considered users, the survey excludes VRC valuation professionals.)
VRC believes that the user group is one of the most important stakeholder groups to be considered in evaluating the
cost/benefit of the current goodwill impairment testing model. This group relies upon the information provided in financial statements to evaluate the risk profile, growth prospects, and the overall investment quality of public companies. It is reasonable to assume that the views of users closely align with the interests of shareholders.
VRC’s user survey posed the following questions:
- When a public company announces a goodwill impairment charge, do you find the related information as it is currently reported on the financial statement to be informative?
- Often before an impairment is taken, a public company communicates “early warning disclosures.” How important is this disclosure information to your research and analysis?
- Would you be in favor of switching from the current impairment-only model to a model where goodwill is amortized? If no, please explain why.
User Survey Responses
The key takeaway of this survey is that users appreciate the information provided in goodwill impairments; however, they want more details surrounding acquisitions, post-acquisition performance, and management’s effectiveness in evaluating and pricing acquisitions:
Additional User Comments
The user group also provided some additional insights:
- Users are concerned about the growing differences between GAAP and non-GAAP earnings. Goodwill amortization would be an addition to the ever-increasing list of items included in non-GAAP measures.
- Users believe that amortizing goodwill may result in fewer impairments, thus masking the impact of poor managerial decision making.
- Amortization would be arbitrary, misleading, and not tied to economic reality.
- Users prefer more disclosures around goodwill, including the detail on the core causes of impairment. They believe that greater transparency leads to better capital allocation decisions.
- Goodwill impairments draw investor awareness and hold management accountable.
The responses to VRC’s user survey are consistent with the belief that goodwill, one of the most significant assets on the balance sheet, is not a wasting asset; amortization of goodwill would be misleading and generally misaligned with the actual economic benefits associated with goodwill.
Download the Infographic
View and print the complete infographic summary results of VRC’s User Survey on the topic of accounting for goodwill and intangible assets for public companies.
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.
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.
Goodwill Impairment: Preparer Survey Summary
We polled our clients for their thoughts on the current accounting for goodwill and intangible assets and have summarized our findings.
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.
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.
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.