FASB Seeking Input on Whether Goodwill Accounting for Intangibles Worth the Cost for Public Companies

By:
Chris Gaetano
Published Date:
Jul 10, 2019
The Financial Accounting Standards Board (FASB) is seeking comments on the accounting for certain identifiable intangible assets acquired in a business combination and subsequent accounting for goodwill. The FASB Invitation to Comment (ITC) said that, due to lack of conclusive input on this topic from stakeholders, it isn't clear whether the benefits of the current accounting treatment justify the costs for public business entities, or whether a change to financial reporting is warranted.

It noted that some stakeholders indicated that the cost to perform the goodwill impairment test increased as a result of the guidance in FASB Statement No. 157, Fair Value Measurements in 2006. While a later amendment allowed for the use of a qualitative test, stakeholders said this did not mitigate the cost concerns. Some readers, meanwhile, said they are unsure whether the information itself is useful. For instance, some stated that goodwill impairment charges are often a lagging indicator of the economic factors that led to a goodwill impairment, and that, therefore, the charges are nonrecurring and adjusted in investors' analyses or eliminated through the use of a non-GAAP metric. Users also expressed concern that measures of certain identifiable intangible assets are not verifiable, comparable or distinguishable from goodwill, and therefore don't necessarily provide decision-relevant information. 

On the other hand, some users believe that impairment charges confirm their beliefs about an acquisition that is underperforming against management’s original expectations. Other users, meanwhile, said a goodwill impairment charge holds management accountable for poor capital-allocation decisions, despite that not being the purpose of a goodwill impairment test. Some users also benefit from understanding the existence and value of identifiable intangible assets recognized on the balance sheet despite concerns about measurement reliability and verifiability.

The FASB said that, without a clear consensus emerging, it has decided to issue this ITC in order to get a better understanding of the issue so that it may ultimately make a decision on this one way or another. Stakeholders are asked to comment on the ITC by October 7, 2019.

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