AFers, I’m trying to get the goods on goodwill. Everyone already knows where it comes from, but I want the nitty gritty – the secrets of goodwill impairment tests beyond the CFAI curriculum. What’s responsible treatment? What’s not? What are the red flags? Has anyone shared firsthand experiences with the impairment process? I believe a deeper understanding of goodwill is especially important now, as lately, it seems like billions of intangible assets with indefinite lives vanish every day. On AF, there are 1023 (probably 1024 or more now) posts mentioning Goodwill. I’m hoping for a shortcut to save time – that someone here remembers a thread on the subject with really insightful posts, and can provide a link (or links) to the best of the best. Thank you, Chris
www.fasb.org Check SFAS 142. Its quite simple to understand.
Sweet… thanks http://www.fasb.org/st/summary/stsum142.shtml
sid3699 Wrote: ------------------------------------------------------- > www.fasb.org > > Check SFAS 142. Its quite simple to understand. Actually, this isn’t really what I was looking for. This doesn’t tell me anything I didn’t already know about goodwill. I’m not asking what it is … I’m looking for specific examples
a red flag is if the company’s price to book ratio is less than one, then the fair value is almost certainly below it’s carrying value, hence impairment. other things to consider - if say FV = $90M, and carrying value is $100M, then a lot of times management thinks the maximum amount of impairment is the difference of $10M. So they have $40M goodwill on the books, they think $10M only will be written off. Wrong. All can be written off - it depends on facts and circumstances. Finally, fair value of a company for fin reporting purposes is defined based on the assumptions of a “typical market participant”. So not necessarily the company itself. This is somewhat subject to BS. For instance assumptions about whether the hypothetical transaction used to establish fair value is taxable vs. non-taxable become important, because of company’s ability to utilize net operating loss carryforwards, tax amortization benefits, deferred tax liabilities/assets, etc.
Thanks MS, this is much more like what I had in mind.