Goodwill Rules Are Called Subjective, Overly Costly -- WSJ
October 15 2019 - 03:02AM
Dow Jones News
By Mark Maurer
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (October 15, 2019).
Company executives who were recently asked to weigh in on
existing rules governing how companies account for goodwill in
their financial statements say the standards have saddled them with
unnecessary costs and are too subjective.
That feedback could help the Financial Accounting Standards
Board, which sets U.S. accounting standards for companies, decide
whether to propose changes to the current standards on goodwill,
which is created when one company acquires another for more than
the value of its hard assets.
The board in July had invited companies, auditors, investors and
others to contribute comments on its current goodwill impairment
model by submitting written feedback over a three-month period
ending Oct. 7.
The invitation to comment was the latest effort in the FASB's
research on the cost-effectiveness of proposed changes to financial
reporting of goodwill, dating back to 2013. The accounting standard
setter gave private companies the option to amortize goodwill in
2014, and offered nonprofits that option in May this year. But
public companies still have no alternative and have been largely
following the same rules, which since 2001 have required them to
test goodwill for potential impairment each year.
The FASB's latest research is focused on the goodwill rules'
impact on public companies, but the board is considering making
larger changes that would affect all companies, according to the
FASB's invitation to comment.
During the period, the FASB received a total of 95 letters,
including ones from International Business Machines Corp., Ford
Motor Co., Verizon Communications Inc., Eli Lilly & Co.,
Chevron Corp. and Cummins Inc.
The majority of companies that provided feedback for the study
said the goodwill rule has room for improvement and that the FASB's
updates over the years have simplified the process. But some went
further in their critiques to say that associated costs outweigh
any possible benefits. While public companies have expressed
grievances with the rules in the past, the board is now seriously
considering addressing those concerns.
The FASB is hosting a public roundtable to discuss the feedback
on Nov. 15. In a statement, a FASB spokeswoman said the input "will
help the board determine what direction it should take at this
early stage of the project."
Engine maker Cummins continued to incur costs associated with
hiring third-party valuation experts, developing cash-flow
forecasts and determining discount rates for its annual goodwill
impairment test, the Columbus, Ind.-based company's controller,
Christopher Clulow, wrote in a statement.
A qualitative screen, which the FASB incorporated into the
standard to reduce the cost to perform the goodwill impairment test
in 2011, isn't enough, he said. "Even performing the qualitative
screen can still prove to be costly and time-consuming due to the
documentation required and review by the auditors," Mr. Clulow
wrote.
Cigna, the Bloomfield, Conn.-based health insurer, found the
current standard "operationally cumbersome," citing the time spent
on the required documentation, review time examining the inputs and
outputs, and an external auditor's involvement, Cigna's chief
accounting officer, Mary Terese Agoglia Hoeltzel, wrote.
The FASB previously received feedback from companies requesting
additional disclosures on goodwill and intangible assets to improve
transparency. But New York-based Verizon, for one, said proposed
additional disclosures on key performance assumptions and targets
would introduce even more costs on a continuing basis.
The disclosures would also run counter to the U.S. Securities
and Exchange Commission's recent push to simplify disclosures,
Tracy Krause, Verizon's vice president of accounting and external
reporting, wrote.
Respondents also offered suggestions for improving goodwill. To
reduce the goodwill rule's subjectivity, Ford recommended the
amortization of goodwill over a default period and testing for
goodwill upon a triggering event instead of annually, wrote Julie
Garity, the Dearborn, Mich., automaker's director of global
accounting policy.
Write to Mark Maurer at mark.maurer@wsj.com
(END) Dow Jones Newswires
October 15, 2019 02:47 ET (06:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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