Level at Which Goodwill is Tested for Impairment Won’t Change
On January 26, the FASB voted 4–3 against changing the unit level at which goodwill should be tested for impairment—a win for the investor voices on the board. If the board were to change from testing for goodwill impairment at the reporting level to the more aggregated operating segment level, it could cause fewer impairments to be recognized, which investors do not favor. “Investors lose hundreds of billions of dollars of market cap as a result of loan acquisitions either through paying too much or poor execution,” FASB member Fred Cannon said. “And I believe that while we move to an amortization model to reflect the cost of the acquisition, if we move completely to that we still miss out on a true economic event and that is measuring actual impairments, especially in the early years of acquisitions,” he said. “I think it’s critically important to maintain as robust an impairment model as possible, if indeed we continue to move toward amortization.”
Practice Aid on Reporting Digital Assets Updated
The AICPA has published an update to Practice Aid—Accounting for and Auditing of Digital Assets to include derivatives and mining. The non-authoritative guidance also adds a topic on crypto asset lending. When the AICPA first issued the practice aid in December 2019, it focused on accounting matters in the digital asset market. At that time, the AICPA said that it would regularly update the guide, including matters related to auditing. The guide is based on the professional literature and the experience of members of the Digital Assets Working Group. The 85-page long guide gives specific scenarios in a question-and-answer format. On contracts involving derivatives and embedded derivatives, for example, the guide deals with a situation where X provides a good to Z in exchange for a promise to get a fixed quantity of crypto assets. X recognizes a right to receive crypto assets that will be settled in 30 days and revenue for the sale of the good. X wants to figure out how it should evaluate whether the asset representing the right to receive a fixed quantity of crypto assets contains an embedded derivative. In the response, the guide walks through the FASB’s accounting rules and the steps involved in the evaluation.
Board Settles on Approach for Issues that Emerge from Review of Standards
The IASB voted on an approach for tackling the issues that emerge from post-implementation reviews (PIR) of accounting standards which aims to utilize its IFRS Interpretations Committee more in that process. The Interpretations Committee is a panel which provides non-authoritative guidance that explains how the IASB intended a standard to be interpreted. Committee members “have the skills to dig into how many people are confused,” IASB Vice Chair and Committee Chair Sue Lloyd said during January 25 board discussions. “They’ve got an extra set of tools, which maybe we could make use of.” Her remarks were part of discussions about how the IASB should consider the priorities from PIRs compared to priorities arising from its Third Agenda Consultation, the document that will help set its five-year agenda. PIRs assess whether a new accounting standard worked as intended. In general, the board agreed with a staff analysis to categorize matters arising from PIRs as follows: high priority–rare issues where the objective of a standard was not met; medium priority issues that require further researched; and low priority issues.