Intangibles Goodwill
Note: In the following exercise, you are required to review the Basis for Conclusions (BCs) for the standard(s) that provide the accounting guidance for this topic. As the BCs are generally not included in the codification and thus are not authoritative, it will most likely be necessary for you to research them through review of the pre-codified standards. Appropriate references have been provided to allow you to do so. Pre-codified standards are accessible on the FASB website at www.fasb.org, or in the event that your school participates in the American Accounting Association's Academic Accounting Access program, they may be found there as well.
Scene 1:
IFRS employs a one-step process for impairment of goodwill, whereas FASB uses a two-step process. In September 2011, FASB issued ASU No. 2011-08, Testing Goodwill for Impairment in response to concerns about the complexity and recurring costs of performing the first step in the impairment test for goodwill. The IASB has not recently challenged its process. Both Boards, however, debated various alternatives in accounting for goodwill in setting their standards.
Read ASU No. 2011-08, paragraphs BC15 - 16. Read IAS 36, paragraphs BC 131A - BC131G.
Both Boards currently utilize an impairment model for goodwill. What other approaches did the Boards consider?
Scene 2:
Why did the Boards consider each of these other approaches?
Scene 3:
Why did the Boards reject each of these other approaches?
Scene 4:
US GAAP requires goodwill to be evaluated for impairment at a reporting unit (RU) level while IFRS requires goodwill to be evaluated for impairment at a cash generating unit (CGU) level. Read ASU No. 2011-08, paragraph BC 17. Read IAS 36, paragraphs BC 137 - BC 150.
Explain the reasons that each Board has for supporting the level at which goodwill should be evaluated.