Class 8 Slides

Question 1

Why was SFAS No. 142 (ASC 350-20) issued?

Answer 1

1. Financial statement users and company managers noted that intangibles are an increasingly important economic resource.
2. Financial statement users indicated that they didn’t regard goodwill amortization expense as being useful info for analyzing investments.

Question 2

How do the changes in SFAS 142 (ASC 350-20) improve financial reporting?

Answer 2

1. Financial statements will better reflect the underlying economic assets of intangibles.
2. Enhanced disclosures improve stakeholders’ ability to assess future profitability and cash flows.

Question 3

What is the process to determine if goodwill is impaired?

Answer 3

1. Determine if the FV of a reporting unit is less its BV

2. If so, then calculate BV less FV; the difference will be the impairment.

Question 4

What potential is there for EM through the application of SFAS 142 (ASC 350-20)?

Answer 4

1. The big bath: future write-offs unnecessary
2. Cosmetic earnings boost via write-off of amortization
3. Avoiding or reducing the amount of write-off (due to subjectivity)