October 2, 2019

Mr. Shayne Kohaneck
Acting Technical Director
Financial Accounting Standards Board
401 Merritt 7 P.O. Box 5116
Norwalk, Connecticut 06856-5116

Dear Mr. Kohaneck:

PricewaterhouseCoopers LLP appreciates the opportunity to comment on the Board's Invitation to Comment, Identifiable Intangible Assets and Subsequent Accounting for Goodwill (the "ITC"). We support the Board's efforts to assess whether amendments to the guidance are needed to address the costs of the current accounting model for goodwill without diminishing the quality of information provided to users.

We note that the IASB is also investigating improvements to IFRS 3, Business Combinations, and IAS 36, Impairment of Assets, with plans to publish a discussion paper later this year. We believe retaining international convergence in accounting for goodwill is of paramount importance. Transparency provides an equal playing field for global stakeholders to make decisions without having to bridge the gap between different accounting frameworks. This maximizes the efficiency of the allocation of global capital. Therefore, we encourage the Board to work collaboratively with the IASB to reduce the likelihood of divergence on the subsequent accounting for goodwill and certain intangible assets.

Historically, we've believed that an impairment-only model, if properly designed, could be superior to amortization of goodwill, but such a model has been elusive. We support the Board's consideration of a mandatory goodwill amortization model given that there is inherent complexity in the current accounting model for goodwill, including the identification of certain intangible assets separate from goodwill, the ability to discern value diminution, if any, and the ability to track goodwill once integrated. Further, in performing impairment testing, preparers often incur significant costs to determine the key assumptions inherent in the goodwill impairment model and to ensure that they have controls around the impairment process.

We acknowledge that certain stakeholders may see benefits to the current model. In particular, certain users may believe there is informational value in an impairment charge, especially when the charge reflects entity-specific factors rather than the impact of broader sector trends that are readily observable by market participants. These concerns are mitigated by financial statement disclosures, which may provide insights into any changes in strategy related to the affected business and MD&A disclosures, which may provide foreshadowing of impairments. Finally, some users may assert that the potential for an impairment serves as a mechanism to assess management's ability to achieve the objectives that underpinned the acquisition.

Consideration of the merits of the current model and further outreach should be performed, as necessary, in order to properly assess the costs and benefits of changes and of any unintended consequences of mandatory goodwill amortization and other alternatives raised by the ITC. The results of this analysis may require the Board to provide additional guidance, as discussed in the Appendix to this letter.

Please find our detailed answers to the "Questions for Respondents" included in the ITC in the appendix to this letter. We would be pleased to discuss our comments or to answer any questions that the FASB staff or the Board may have. Please do not hesitate to contact David Schmid (973-997-0768) or Andreas Ohl (646- 229-9571) regarding our submission.

Sincerely,

PricewaterhouseCoopers LLP

From an accounting perspective, goodwill represents the excess of the cost of an acquired business over the aggregate amount assigned to the identifiable net assets acquired. From an enterprise valuation perspective, the majority of goodwill cash flows are expected to extend beyond the lives of the identifiable net assets that exist at the acquisition date (e.g., the expectational value created through developing new technologies and winning new customers). From an economic perspective, it incorporates the established reputation of a business, excellence of management, future growth potential, culture, and the worth of corporate identity as well as the value of inseparable but important intangible assets, such as a skilled workforce and institutional knowledge that emerge from, and are maintained by, the ongoing operation of the business. Goodwill can also be described as the expected value of the ability, as a function of institutional knowledge and excellence of management, to maintain a competitive advantage beyond the life of existing assets (i.e., the expected value of generating excess returns on capital into the future). Goodwill represents the presumption that an established business will continue to identify and successfully execute on new projects, thus earning a higher rate of return on an assembled collection of net assets than would be expected if those net assets had to be acquired separately. All of these elements are typically expected to appreciate in value over time as the business grows.

Goodwill is fully enmeshed in the fabric and going concern nature of a business, and has value specifically because a business operates and is expected to continue operating in perpetuity. It is important to understand that goodwill exists in almost all businesses, even in the absence of a transaction.

Synergies are also typically present, particularly in transactions that represent industry consolidation. However, goodwill is not solely a function of synergies. As noted above, goodwill is present in all businesses. Goodwill is present even if synergies are nominal. For example, material goodwill amounts may be recognized in acquisitions by private equity firms that have limited synergies as the acquired business is not being combined with an existing business of the acquirer. Similar to most other elements of goodwill, the value derived from synergies is presumed to be long-lived by market participants. In the cash flow models that support the purchase price and that are the basis for the purchase price allocation, synergies, particularly cost synergies, are typically expected to persist indefinitely. For example, if two businesses combine and as a result, the finance function of one of the businesses is eliminated, this cost reduction is deemed to be permanent.

Question 2: Do the benefits of the information provided by the current goodwill impairment model justify the cost of providing that information? Please explain why or why not in the context of costs and benefits.

Our user input indicates that there is not a common view as to the usefulness of the information generated by the current goodwill impairment model. However, impairment charges and the related disclosures, including those that precede the impairment charges (i.e., early warning disclosures) appear to be useful. The impact can sometimes be observed in stock price movements or in spikes in trading volume that accompany impairment disclosures. The information may be of more value if it relates to the entityspecific circumstances as opposed to reflecting a broader decline in a sector or the overall economy as the latter circumstances are already known by users. In some cases, the value of the information may be limited to confirmation that there has been a decline in value of the acquired business. This confirmation may be accompanied by disclosures that provide insights into any change in strategic direction. Finally, some may assert that the risk of impairment enables stakeholders to hold senior management accountable for the achievement of the financial and operational objectives that underpinned the acquisition. However, while some users assert that impairment charges provide useful information, there is not consensus among users as others dismiss it as a non-cash charge and some users criticize preparers for recognizing impairment losses too late and/or in amounts that are too small and view goodwill impairments as a "lagging indicator." We suggest the Board weigh input from users and preparers as it proceeds with this project.

We also observe that many preparers incur significant costs and spend considerable time executing the goodwill impairment model. These costs may include engaging third-party specialists to assist with key assumptions and perform valuations, developing and maintaining appropriate controls around the impairment process, and supporting assertions to auditors. We recommend the Board consider further outreach on the costs incurred by reporting entities for goodwill impairment testing, given the impact of adoption of new guidance under Accounting Standards Update 2017-04, Simplifying the Test for Goodwill Impairment, may not have been fully realized. This will enable the Board to assess whether users receive benefits commensurate with the cost of preparing such information. Please refer to Question 7 for further discussion.

Question 3: On a cost-benefit basis, relative to the current impairment only model, do you support (or oppose) goodwill amortization with impairment testing? Please explain why in your response.

We support the Board's consideration of a mandatory goodwill amortization model given that there is inherent complexity in accounting for goodwill today. However, there may also be challenges with an amortization model depending on how much judgment will need to be applied to implement any proposed standard on an ongoing basis (e.g., determination of useful life and the pattern of recognition). As such, we suggest the FASB study these impacts.

In the current model, there are a number of challenges. Preparers often incur significant costs to determine the key assumptions inherent in the goodwill impairment model, to ensure that they have controls around the impairment process, and to support the audit. In addition, acquired businesses are often integrated into the acquirer's existing operations. Therefore, goodwill loses its separate character as it is commingled into the broader enterprise.

There may also be challenges in implementing an amortization model. For example, if companies are allowed to use a life other than a default period, the inability to specifically identify the components of goodwill may make justifying a reasonable estimate of a useful life too difficult. See our response to Question 4.

Question 4: If the Board were to decide to amortize goodwill, which amortization period would you support? Please include all that apply in your response and explain why you did not select certain characteristics.

We considered the various alternatives proposed by the Board for the appropriate goodwill amortization period, and we would support a default period. Subject to feedback received through the ITC process and any additional outreach and analysis, a cap on amortization period (potentially coupled with a floor), and justification of an alternative amortization period other than a default period may also have merit.

In order to determine the useful life of goodwill, one must first determine what goodwill represents. We observe in connection with the development of FAS 142, Goodwill and Other Intangible Assets, and the related international standard IFRS 3, Business Combinations, there were differing views on whether goodwill was an indefinite-lived asset or an asset for which value potentially diminished over time. The Board recognized in the Basis for Conclusions for FAS 142 that there may be components of goodwill that would result in goodwill being considered a non-wasting asset, in part, as long as the business is considered a going concern, but also that there are components that are wasting assets. We believe this existing diversity in views could result in a wide array of interpretations for an appropriate useful life to amortize goodwill, which would limit comparability between companies.

The proposed alternative to align the amortization of goodwill to the life of identifiable assets acquired may not be appropriate as the life of the identifiable assets may not necessarily match the underlying economics of goodwill and thus, may not be a meaningful indicator of the useful life of goodwill. For example, the primary identifiable assets of a software developer may be technologies with relatively short useful lives. However, this does not mean that the goodwill, which likely represents the market's expectations that this business will continue to develop successful new products far into the future, has a short life. Alternatively, if the primary asset is an indefinite-lived brand, it is unclear what amortization period should be applied to goodwill. An approach based on the weighted-average useful life of identifiable assets would have a similar issue and excluding indefinite-lived assets from the calculation would not be representational of the assets acquired.

We considered if management could develop a useful life assumption through the use of estimates, such as based on expected synergies of cash flows. As discussed in our response to Question 1, the value derived from synergies is generally presumed to be long-lived by market participants. Therefore, we do not believe that calibrating the life to the expected duration of synergies is a workable alternative because most acquisitions are priced on the assumption that these cash flows will persist in perpetuity. Furthermore, it would be difficult to reassess the useful life in future periods as it is often challenging to specifically identify and attribute synergies achieved to a particular acquisition.

The Board has also proposed an alternative in which management could justify a useful life assumption outside a default period. Conceptually, this would result in the financial reporting reflecting management's judgment based on facts and circumstances, such as differences between acquired companies or factors related to their specific industries. For example, for a utility in a low or negative interest rate environment, the useful life could be very long. While amortization based on management's expectation is consistent with how other assets are amortized, we believe this introduces a complex judgment that could negate any benefit of cost reduction from moving to an amortization model. It is also important to note that ASC 350 requires companies to reassess the useful life of intangible assets when facts and circumstances warrant.

Given there is wide diversity of views as to what goodwill represents and thus its useful life, a cap could help limit the potentially wide range of useful lives based on management's judgment. We believe that, in practice, a cap may become an unintended default period. However, if set at a longer period of time (for example, 40 years, consistent with the prior guidance under APB Opinion No. 17, Intangible Assets), companies may face scrutiny for using this period. Also, as noted above, in a low interest rate environment, not establishing a cap may result in the useful life being significantly longer than prior caps under both US GAAP and IFRS. While some may believe only a cap is needed, a cap in conjunction with a floor might be more beneficial to limit the use of an extremely short useful life. We observe that under Japanese GAAP, which permits goodwill amortization, many entities have useful lives less than 10 years.

The use of a default period potentially may offer the greatest impact from a simplification perspective. While it may not reflect underlying economic differences between industries, it does allow for comparability. Additionally, the default period could be aligned to the IRS tax code or IFRS guidance that would result in further cost benefit to preparers. It also eliminates the need for companies to revisit the useful life when facts and circumstances change.

Finally, should the Board decide to reinstate goodwill amortization, we believe it should not be optional but rather applied by all entities. The FASB should also consider the method of amortization. To the extent that one believes goodwill diminishes over time, the pattern of diminution is difficult to predict and in most cases is not linear and determining whether a residual value would be applicable is challenging. Given this difficulty, and for comparability and consistency, we believe that the Board may want to consider requiring straight-line amortization.

Question 5: Do your views on amortization versus impairment of goodwill depend on the amortization method and/or period? Please indicate yes or no and explain.

Yes, introducing judgment and complexities in an amortization model (including amortization method or period) would limit the potential cost benefit that could be obtained through the move to amortization, and would be inconsistent with the objective of simplification and comparability.

We also note that in accordance with ASC 350-30-35-9, entities are required to evaluate the remaining useful life of an intangible asset each reporting period to determine whether events or circumstances may indicate that a revision to the useful life is warranted to reflect the remaining expected use of the asset. If a company is required to determine an entity-specific useful life for goodwill, we would expect a similar requirement for reassessing the useful life on a periodic basis, which would result in the potential for further costs. Similarly, the Board would likely need to consider if a goodwill impairment, or a trigger, would require the useful life to be reassessed.

Question 6: Regarding the goodwill amortization period, would equity investors receive decision-useful information when an entity justified an amortization period other than a default period? If so, does the benefit of this information justify the cost (whether operational or other types of costs)? Please explain.

While there might be decision-useful information if an entity could justify a different amortization period, the judgments involved could create unintended complexity. As detailed in our response to Questions 4 and 5, we believe justification of an amortization period other than a default period could result in incremental costs and effort by preparers.

Question 7: Do the amendments in Update 2017-04 (eliminating Step 2 of the goodwill impairment test) reduce the cost to perform the goodwill impairment test? Do the amendments in Update 2017-04 reduce the usefulness of financial reporting information for users? Please explain.

We believe that Update 2017-04 reduces costs and complexity to financial statements preparers. To date, we are not aware that the update has significantly reduced the usefulness of financial reporting information for users. However, while simpler, the new single step may be less precise. For example, it may give rise to a goodwill impairment that is largely driven by other assets or not yet recognized or fully valued liabilities in the reporting unit, the fair value of which are below carrying value, but are not otherwise impaired under the accounting literature.

We recognize that while Update 2017-04 could be early adopted, the amended guidance is not required until fiscal years beginning after December 15, 2019 for public entities. Therefore, there may be other significant feedback on cost reduction and other benefits the FASB should consider when contemplating additional changes to subsequent accounting for goodwill.

Question 8: Do the amendments in Update 2011-08 (qualitative screen) reduce the cost to perform the goodwill impairment test? Do the amendments in Update 2011-08 reduce the usefulness of financial reporting information for users? Please explain and describe any improvements you would recommend to the qualitative screen.

Yes, when applicable, Update 2011-08 reduces costs for many financial statements preparers without reducing the usefulness of financial reporting information for users. At this time, there are no other improvements to the qualitative screen that we suggest the Board consider.

Question 9: Relative to the current impairment model, how much do you support (or oppose) removing the requirement to assess goodwill (qualitatively or quantitatively) for impairment at least annually? Please explain why in your response.

We support removing the requirement to assess goodwill for impairment at least annually along with removal of the qualitative assessment (i.e., Step Zero). This would be consistent with the impairment guidance for other long-lived assets subject to amortization under ASC 360, Property, Plant and Equipment. The annual requirement is an additional burden that we do not feel provides incremental value when using a robust trigger-based impairment model. Additionally, as companies generally already have processes and controls in place for trigger-based assessments, we believe eliminating the annual requirement (including the qualitative assessment) could, overall, reduce costs to preparers.

Question 10: Relative to the current impairment model, how much do you support (or oppose) providing an option to test goodwill at the entity level (or at a level other than the reporting unit)? Please explain why in your response.

We considered if goodwill impairment testing could be performed at a level other than the reporting unit. We believe the Board should consider completing additional research and performing further outreach as to potential implications of performing testing at a different level.

Performing impairment testing at a higher level would allow operations from other reporting units to shield potential impairments related to acquisitions with poor performance, which would ultimately delay or avoid goodwill impairment recognition. We also observe that this could reduce potentially helpful information to users. There are also potential implications to the application of accounting for foreign currency translation and deferred tax reporting, as detailed in our response to Question 28.

Further, applying the impairment model to a level below the reporting unit could be too low such that it could be cost prohibitive.

We believe that impairment testing at the reporting unit level captures most situations in which the goodwill carrying amount is not recoverable and would require impairment. Further, public companies have been applying the reporting unit concept for many years and have processes and controls in place to identify and accumulate information about reporting units. As such, we do not recommend changing this guidance absent further study.

Question 11: What other changes to the impairment test could the Board consider? Please be as specific as possible.

We recognize that preparers face several operational challenges in performing goodwill impairment testing under existing guidance. If the FASB decides not to amortize goodwill and retains the current impairment model, some of these may warrant further consideration. We are happy to share further information related to challenges with the current model.

Question 12: The possible approaches to subsequent accounting for goodwill include (a) an impairment-only model, (b) an amortization model combined with an impairment test, or (c) an amortization-only model. In addition, the impairment test employed in alternative (a) or (b) could be simplified or retained as is. Please indicate whether you support the following alternatives by answering "yes" or "no" to the questions in the table below. Please explain your response.

*In order to support this alternative, we would need further clarity as to the proposed model. We suggest the FASB perform further outreach and recommend field testing.

As discussed in our responses to Question 3, Question 9, and Question 10, we support exploring a goodwill model that includes both amortization and a trigger-based impairment assessment.

Question 13: Please describe what, if any, cost savings would be achieved if certain recognized intangible assets (for example, noncompete agreements or certain customerrelated intangible assets) were subsumed into goodwill and amortized. Please be as specific as possible. For example, include specific purchase price allocation or subsequent accounting cost savings. Please list any intangible items the Board should consider subsuming into goodwill.

We generally believe that intangible assets should not be subsumed into goodwill because the recognition of intangibles provides users with decision-useful information. We note that the purchase price paid for a business is often directly impacted by the existence and value of intangible assets. However, some cost savings may be achieved if certain finite-lived intangible assets are subsumed into goodwill.

Noncompete agreements are seldom material and often accounted for as a transaction separate from the business combination, and therefore could be subsumed into goodwill. We also recognize that there are practice challenges and costs associated with identifying and measuring certain customer-related intangibles. We suggest the Board narrow the definition of contractual customer-related intangible (CRI) assets, as the current guidance is broad and considers CRIs to meet the contractual-legal criterion even if there is no contract in place as of the transaction date as long as there had been a contract in the past (including a past purchase order). We instead propose that the FASB revisits the alternative (View B4) in the memo (13-01A) prepared by the FASB staff addressed to the Private Company Council on July 2, 2014 as a means of narrowing the definition of a CRI. Subsuming these into goodwill would not be a significant change to US GAAP, and would not impact the accounting for other intangibles. We also believe it would result in cost savings and would be more representative of the economic nature of goodwill.

However, to the extent intangible assets are subsumed into goodwill, additional differences between asset acquisitions and business combinations will be created, which is inconsistent with the Board's objective of aligning the accounting for both as part of Phase 3 of the Definition of a Business Project.

Question 14: Please describe what, if any, decision-useful information would be lost if certain recognized intangible assets (for example noncompete agreements or certain customer-related intangible assets, or other items) were subsumed into goodwill and amortized. Please be as specific as possible. For example, include specific analysis you perform that would no longer be possible.

As noted in Question 13, we believe the recognition of intangible assets provides users with decision-useful information given the key role these assets play in determining the purchase price for a business to be acquired.

Noncompete agreements are normally initiated by the acquiring entity to protect the interests of the combined entity. Our view is that noncompete agreements negotiated as part of a business combination should generally be accounted for as transactions separate from the business combination. However, we note that in most cases, noncompete agreements are not material; therefore, we do not believe useful information would be lost in subsuming noncompete agreements into goodwill.

Question 15: How reliable is the measurement of certain recognized intangible assets (for example, noncompete agreements or certain customer-related intangible assets)?

We recognize that customer relationships from contractual or legal arrangements (e.g., subscribers to a service, government procurement contracts) can be significant value drivers in an acquisition. Outside of the discount rate used to value all intangibles, the major input in valuing customer-related intangibles is the customer attrition rate. The attrition rate is derived from historical patterns or from the underlying contractual terms, which are generally considered reliable. The measurement of on-going customer relationships associated with purchase order or at-will customers can be difficult to estimate in comparison to contractual CRIs.

Question 16: To gauge the market activity, are you aware of instances in which any recognized intangible assets are sold outside a business acquisition? If so, how often does this occur? Please explain.

As the economy continues to transition to one driven by technology, transactions that involve the sale or license of intellectual property outside a business combination are increasingly common. For example, rights to pharmaceutical products, FCC licenses, and developed software are routinely sold or licensed.

Question 17: Of the possible approaches presented, which would you support on a costbenefit basis? Please rank the approaches (1 representing your most preferable approach) and explain why you may not have selected certain approaches.

As detailed in our response to Question 13, we recommend that the FASB consider narrowing the definition of customer-related intangibles. Items excluded from this definition (i.e., on-going customer relationships associated with purchase order based or at-will customers) would be captured in the goodwill balance. Other than this suggested change for customer-related intangibles, we do not support amending the existing guidance for intangible assets.

We considered each of the approaches posed by the Board. We recognize that Approach 1 may reduce complexity for preparers. However, the application of certain valuation methodologies may still require the determination of the fair value of customer-related intangible assets for purposes of calculating contributory asset charges, which are necessary inputs in the determination of the fair value of other recognized identifiable assets. This could eliminate any cost benefit of Approach 1. We believe that the potential additional costs under Approach 2 would not be justifiable. Please refer to Question 18 for further discussion on Approach 2.

We do not support any of the approaches. However, we view Approach 3 as the least preferable option given we do not believe all intangible assets should be subsumed into goodwill. We have observed that intangible assets such as trade names, technology, in-process research and development, and contractual assets comprise a significant portion of overall purchase price. Subsuming all intangibles into goodwill would reduce disclosure of relevant, decision-useful information related to acquired businesses. We also believe this approach is contrary to the Basis for Conclusions to Statement 141(R), Business Combinations, which stated that the decision usefulness of financial statements would be enhanced if intangible assets were distinguished from goodwill.

As highlighted in our response to Question 13, subsuming all intangibles into goodwill would widen the gap between financial reporting for a business combination compared to an asset acquisition in which intangible assets would be recognized separately. Approach 3 also could give rise to complexity if a reporting entity decided to subsequently sell an intangible asset. Finally, some identification and valuation of individual assets would still be required in order to properly measure deferred taxes and currency translation adjustments.

Question 18: As it relates to Approach 2 (a principles-based criterion), please comment on the operability of recognizing intangible assets based, in part, on assessing whether they meet the asset definition.

If a principles-based approach requires intangibles to meet the asset definition per FASB Concepts Statement No. 6, Elements of Financial Statements, in order to be recognized, it may increase the transparency of the disclosures. However, this would also result in incremental costs for management in assessing intangible assets and establishing related controls processes, and for auditor review of the application of this type of criterion.

Question 19: Approaches 1-3 assume that subsuming additional items into goodwill would necessitate the amortization of goodwill. Do you agree or disagree? Please explain why.

Yes, we agree that subsuming additional items into goodwill (i.e., all intangibles or all customer relationships) would necessitate the amortization of goodwill. Certain intangible assets have finite useful lives. If a greater portion of value assigned to goodwill can be clearly tied to an identified useful life, it would be rational that amortization should be required to reflect the benefit of use of the asset.

Section 3: Whether to Add or Change Disclosures about Goodwill and Intangible Assets Question 20: What is your assessment of the incremental costs and benefits of disclosing the facts and circumstances that led to impairment testing that have not led to a goodwill impairment loss?

We believe that such disclosure will serve as a form of an early warning disclosure. We also believe that when the circumstances are specific to the company, rather than to the sector at large, the information content of such disclosures is likely more useful to investors. The incremental costs should be minimal as the disclosure would simply be a qualitative description of the facts and circumstances that caused the trigger-based impairment test.

Question 21: What other, operable ideas about new or enhanced disclosures would you suggest the Board consider related to goodwill?

While certain users acknowledge the usefulness of impairment charges, others indicate that the information is provided too late and therefore is not valuable. Other information disclosed related to reporting units that are at heightened risk of impairment through early warning disclosures (e.g., key impairment model inputs) may be reduced as a result of goodwill amortization given that fewer reporting units will have limited headroom. We understand that the information related to goodwill impairment currently provided to potential investors, creditors, and other users of financial information has relevance. As such, we recommend the FASB conduct outreach to users to identify any additional useful information that could be considered when developing new disclosure requirements.

Question 22: What is your assessment of the incremental costs and benefits of disclosing quantitative and qualitative information about the agreements underpinning material intangible items in (a) the period of the acquisition and (b) any changes to those agreements for several years post-acquisition. Please explain.

We believe the suggested disclosures would be excessive. Presuming the agreements were material enough to potentially trigger an impairment test, significant changes to those agreements would be captured in the suggested disclosure in Question 20.

Question 23: Are there other changes (deletions and/or additions) to the current disclosure requirements for goodwill or intangible items that the Board should consider? Please be as specific as possible and explain why.

We suggest the Board consider certain additional disclosures for goodwill that would provide incremental decision-useful information. For instance, companies could disclose information below the reportable segment level, such as the number of reporting units, the reporting unit structure, and how goodwill is allocated to reporting units in an acquisition.

Question 24: Under current GAAP, to what extent does noncomparability in the accounting for goodwill and certain recognized intangible assets between PBEs and private business entities and not-for-profit entities reduce the usefulness of financial reporting information? Please explain your response.

We recognize that the economics related to goodwill and intangible assets are consistent for both public and private companies. Generally, we believe that the financial reporting that is relevant to the users of public company financial statements is also relevant to the users of private company financial statements. However, we recognize that there may be a difference in key users (i.e., equity investors for public companies compared to creditors for private companies and various stakeholders for not-for-profit entities) that result in a focus on different information within the financial statements. Also, private company stakeholders may have greater access to management. Therefore, noncomparability between PBEs, private business entities, and not-for-profit entities does not necessarily reduce the usefulness of financial reporting information.

Question 25: Please describe the implications on costs and benefits of providing PBEs with an option on how to account for goodwill and intangible assets and the option for the method and frequency of impairment testing (described previously in Sections 1 and 2).

We believe that providing the option to elect goodwill amortization will reduce comparability in financial statements. Allowing discretion in defining the goodwill amortization period, method of amortization, and the method and frequency of impairment testing further reduces comparability and introduces additional subjective judgment that will require incremental effort by preparers and auditors and may be subject to additional scrutiny. These costs negate the simplification benefit that would be obtained with goodwill amortization.

Question 26: To what extent does noncomparability in the accounting for goodwill and certain recognized intangible assets between PBEs reporting under GAAP and PBEs reporting under IFRS reduce the usefulness of financial reporting information. Please explain your response.

We believe that maintaining international convergence of business combination accounting is of paramount importance to enhance the quality and comparability of financial reporting. Transparency provides an equal playing field for global stakeholders to make decisions without having to bridge the gap between different accounting frameworks and therefore, maximizes the efficiency of the allocation of global capital. We are aware that the IASB is investigating improvements to IFRS 3, Business Combinations, and IAS 36, Impairment of Assets, after feedback from the post-implementation review of IFRS 3 with plans to publish a discussion paper later this year. We encourage the Board to work collaboratively with the IASB to reduce the possibility of divergence in the subsequent accounting for goodwill and certain intangible assets.

Question 27: Please indicate the sources of comparability that are most important to you regarding goodwill and intangible assets. Please select all that apply and explain why comparability is not important to you in certain cases.

We believe comparability among all PBEs reporting under GAAP and IFRS is the most critical source of comparability in all situations, including goodwill and intangible assets. We also feel that comparability among PBEs reporting under GAAP is highly important in providing consistent decision-useful information to users of financial statements. As discussed in Question 24, there may be different types of stakeholders placing reliance on the information disclosed in public compared to private company financial statements, such as equity investors versus creditors. We also recognize that there are unique aspects of the not-for-profit business combination model. Therefore, we consider comparability among all entities reporting under GAAP and comparability among all private and not-for-profit entities to be of lesser importance.

Question 28: Do you have any comments related to the Other Topics for Consideration Section or other general comments?

We have considered the various alternatives posed by the ITC, and recommend the Board consider interactions with other existing GAAP to mitigate potential complexities upon adoption of proposed amended guidance related to the subsequent accounting for goodwill. For example, under current GAAP, a company with an investment accounted for under the equity method is required to identify basis differences between the cost of the investment and the amount of underlying equity in the net assets of the investee. ASC 350-20-35-58 notes that "the portion of the difference...that is recognized as goodwill...shall not be amortized." The Board should consider if it intends to preclude companies from amortizing goodwill associated with its equity method investment basis differences.

We do not recommend the Board change the level of testing to the asset group level should goodwill be amortized.

Additionally, amortization of intangibles and impairment of goodwill may be included in operating expenses and are frequently aggregated with other line items while impairments of long-lived assets may be included in selling, general, and administrative expenses, cost of sales, or presented separately on the income statement. The Board should consider whether it is necessary to prescribe guidance on the income statement classification of amortization expense related to goodwill.

Subsuming intangibles into goodwill may also impact other areas of accounting. For example, subsuming intangibles into goodwill would result in a difference between accounting for business combinations and asset acquisitions because in an asset acquisition, absent changes to current guidance, the purchased intangibles would be separately recognized as goodwill is not recorded in an asset acquisition.

Further, when translating the financial statements of foreign entities under ASC 830, companies must assess whether goodwill and intangibles should be attributed to the foreign entity. If all intangibles were to be subsumed into goodwill, determination of this attribution may become more complex. In addition, in order to calculate the tax amortization benefit and to properly measure deferred taxes, companies need to determine in which legal jurisdiction intangible assets, including goodwill reside. As a result, many companies will need to continue to perform much of the same analysis required by the current model.

In connection with the Board's simplification initiatives, we support consideration of amending the current guidance that prohibits an entity from recognizing a deferred tax liability when the book basis of goodwill exceeds the tax basis of goodwill.

We noted that the ITC did not address whether there should be a change to the subsequent accounting for indefinite-lived intangible assets outside of the alternative to subsume all intangibles into goodwill. While economically goodwill and indefinite-lived intangibles, such as brands, can share many of the same attributes, there is a significant difference in the cost to apply the impairment models. As such, we support limiting the proposed project to goodwill at this time.

Finally, we believe that there could be operational consequences of changing the goodwill model that the FASB should consider researching. First, in certain jurisdictions, the amount of certain components of equity are relevant to a company's ability to pay dividends and engage in certain types of equity transactions. Additionally, if equity declines below a prescribed level, it may necessitate a capital raise. Given that some companies may have goodwill balances that are material relative to equity, the FASB may want to consider researching if these issues are prevalent.

We are also aware that net deferred tax assets can impact measures of regulatory capital in some jurisdictions. Given that the amortization of goodwill will impact deferred taxes, particularly if a life that is different than the tax life is utilized, this may also be an area that warrants further research. We also understand that goodwill metrics are utilized by some rating agencies in their assessments. Ratings can be used in many ways by market participants. It would be useful to understand what impact a change in the accounting model would have on the ratings process.

We encourage the FASB to hold roundtables given the importance of this topic and we would be interested in participating.