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8.9 Goodwill
Publication date: 30 Jun 2022
us Financial statement presentation guide 8.9
As discussed in ASC 350-20-45-1, reporting entities are required to present the aggregate amount of goodwill as a separate line item in the balance sheet.
8.9.1 Goodwill reconciliation
A reconciliation of the carrying amount of goodwill at the beginning and end of the reporting period is required and should include the following:
Excerpt from ASC 350-20-50-1
The changes in the carrying amount of goodwill during the period shall be disclosed, showing separately:
- The gross amount and accumulated impairment losses at the beginning of the period
- Additional goodwill recognized during the period, except goodwill included in a disposal group that, on acquisition, meets the criteria to be classified as held for sale in accordance with paragraph 360-10-45-9
- Adjustments resulting from the subsequent recognition of deferred tax assets during the period in accordance with paragraphs 805-740-25-2 through 25-4 and 805-740-45-2
- Goodwill included in a disposal group classified as held for sale in accordance paragraph 360-10-45-9 and goodwill derecognized during the period without having previously been reported in a disposal group classified as held for sale
- Impairment losses recognized during the period in accordance with this Subtopic
- Net exchange differences arising during the period in accordance with Topic 830
- Any other changes in the carrying amounts during the period
- The gross amount and accumulated impairment losses at the end of the period.
ASC 350-20-50-1 also requires reporting entities that report segments under ASC 280, Segment Reporting, to disclose this information in total, and for each reportable segment. Significant changes in the allocation of goodwill should also be disclosed by segment. If any portion of goodwill has not yet been allocated to a reporting unit at the date the financial statements are issued, that unallocated amount and the reasons for not allocating that amount should be disclosed.
A reporting entity may change its internal organizational structure such that the composition of reportable segments changes under ASC 280. This would result in the reporting entity restating all periods shown to reflect the new segments (see FSP 25.7.8 for further discussion). If the change in reporting structure does not change the composition of the entity’s reporting units (e.g., the reporting units are being combined into a new reporting unit), the disclosures required for goodwill under ASC 350-20-50-1 could be revised without a reallocation of goodwill to reporting units.
If the composition of one or more of the reporting entity’s reporting units is changed, the guidance in ASC 350-20-35-39 through ASC 350-20-35-40 should be used to reassign assets and liabilities to the reporting units affected. Goodwill should be reassigned to the reporting units affected at the time the change to the structure is made and reported (in accordance with ASC 350-20-50-1(g)). This should be done using a relative fair value allocation approach similar to that used when a portion of a reporting unit is to be disposed of using the relative fair value approach discussed in ASC 350-20-35-51 through ASC 350-20-35-57. Recasting goodwill disclosures for periods prior to the change to reflect the change on an “as if” basis is not necessary. Refer to BCG 9 for further details on this topic.
New guidance
Upon adoption of ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment, additional disclosures are required for reporting entities that have reporting units with zero or negative carrying amounts of net assets.
Entities that have one or more reporting units with zero or negative carrying amounts of net assets shall disclose those reporting units with allocated goodwill and the amount of goodwill allocated to each and in which reportable segment the reporting unit is included.
8.9.2 Goodwill impairment
As discussed in ASC 350-20-45-2, the aggregate amount of goodwill impairment losses should be presented as a separate line item on the income statement within continuing operations unless a goodwill impairment is associated with a discontinued operation. Disclosure is required for each goodwill impairment loss recognized.
ASC 350-20-50-2
For each goodwill impairment loss recognized, all of the following information shall be disclosed in the notes to the financial statements that include the period in which the impairment loss is recognized:
- A description of the facts and circumstances leading to the impairment
- The amount of the impairment loss and the method of determining the fair value of the associated reporting unit (whether based on quoted market prices, prices of comparable businesses or nonprofit activities, a present value or other valuation technique, or a combination thereof)
- If a recognized impairment loss is an estimate that has not yet been finalized (see paragraphs 350-20-35-18 through 35-19), that fact and the reasons therefore and, in subsequent periods, the nature and amount of any significant adjustments made to the initial estimate of the impairment loss.
This information should continue to be disclosed in the footnotes until the impairment loss is no longer presented.
ASC 820-10-50 indicates that measurements based on fair value (e.g., impairments of goodwill under ASC 350) are also subject to the disclosure requirements in ASC 820. Required disclosures include the fair value measurement, relevant measurement date, reasons for the fair value measurement, valuation techniques, and information about the inputs to the fair value measurement, including significant unobservable inputs.
ASC 820-10-50-2(bbb) requires quantitative disclosures about significant unobservable inputs used in fair value measurements categorized within Level 3 of the fair value hierarchy. These disclosures are not required for fair value measurements related to the financial accounting and reporting for goodwill after its initial recognition in a business combination. Refer to FSP 20.3.1 for details regarding the general fair value disclosure requirements.
In addition to the fair value measurement disclosures, ASC 275-10-50 requires a reporting entity to disclose its use of estimates when the resolution of matters could differ significantly from what is currently expected, and if it is reasonably possible that the estimates will change in the near term and the effect of the change will be material. Disclosure may also be required under ASC 275 even if a reporting entity concludes that an impairment charge is not required. Refer to FSP 24.3.3 for further information about the requirements of ASC 275.
New guidance
Upon adoption of ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment, ASC 350-20-50-2(c) is superseded.
PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
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