Goodwill Impairments Expected to Spike in 2020
Companies will likely report more goodwill impairments than they might have planned for the first quarter of 2020 because the coronavirus (COVID-19) pandemic will cause them to have to determine whether their intangible assets have declined in value, accounting professionals have told FASB. Goodwill is an intangible asset that enters balance sheets through merger and acquisition activity and can affect a company’s earnings if it declines in value (i.e., becomes impaired). The COVID-19 crisis comes at a time when new FASB rules that simplify the test for goodwill impairment take effect for large public companies. “Clearly, the COVID-19 pandemic is a triggering event that would cause many companies to test goodwill for impairment on an ‘interim basis’—i.e., before the scheduled annual testing date,” Scott Ehrlich, president of Mind the GAAP, LLC, said. “Because of the overall decline in market values, more reporting units would likely fail the goodwill impairment test … the fair value of the reporting unit will be less than its carrying amount.”
No Deferral Planned for Interest Rate Reform Standard
GASB has said its decision to defer the effective date of some critical accounting standards to ease implementation hurdles brought on by the coronavirus (COVID-19) pandemic will not include rules on reference rate reform. GASB still plans to issue GASB Statement (GASBS) 93, Replacement of Interbank Offered Rates, on April 2, 2020. The decision means that rules for benchmark interest rates would apply to reporting periods ending after December 31, 2021; the remaining requirements are effective for reporting periods beginning after June 15, 2020. “I certainly agree with staff recommendations as far as continuing to maintain the effective dates,” GASB member James Brown said during the board’s meeting, which was held online. “I believe that LIBOR is flawed anyway, versus the replacement of LIBOR, because of the variability in there with regard of the credit risk component and going to a rate that probably has less credit risk into it. … I think the new rate is probably better in terms of getting closer to a risk free [rate], and so I think it would improve financial reporting to get rid of it as of the date that’s proposed currently,” Brown said.
April Webinars to Explain Revised Requirements for Audits of Accounting Estimates and Use of Specialists
The PCAOB has said that it will hold webinars to help auditors implement new auditing standards on accounting estimates and use of specialists on April 21, 2020. The audit regulator revised the audit standards in December 2018, and the changes go into effect for audits of financial statements for fiscal years ending on or after December 15, 2020. The board amended the audit standards because the use of estimates in financial reporting has become more widespread while the reliance upon valuation specialists has also grown, and GASB’s inspectors have found problems with both practice. The first webinar on April 21 will be about Release 2018-005, Auditing Accounting Estimates, Including Fair Value Measurements, which is designed to improve audits of accounting estimates. This will be followed by another webinar on Release 2018-006, Amendments to Auditing Standards for Auditor’s Use of the Work of Specialists, which strengthens the requirements for auditors’ use of specialists, such as actuaries and engineers.