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The SEC staff has focused on the quality of the disclosure about significant judgments and estimates associated with goodwill and intangible assets, including impairment assessments, frequently commenting on:
  • the identification of reporting units, including factors considered when multiple components have been combined into a single reporting unit due to economic similarities;
  • at risk reporting units, including information about the amount of goodwill and headroom at the reporting unit, discussion of the key assumptions used to determine the reporting unit’s fair value and the associated degrees of uncertainty, and a description of potential events or changes in circumstances that could negatively affect the key assumptions;
  • triggering events that may indicate that an interim impairment assessment is necessary; and
  • the timing of goodwill and intangible asset impairment charges.
Comment examples (generalized to identify overarching themes, with specific details pertaining to individual companies omitted)
Guidance References
  • We note your change in segments resulted in a change in the allocation of goodwill to your reporting units. Please tell us whether you performed an interim goodwill impairment test related to the existing reporting units before the change. If not, explain why not. Refer to ASC 350-20-35-45 and ASC 350-20-35-3Cf.
  • Please revise your financial statements in future filings to disclose the amount of goodwill allocated to each reportable segment as required by ASC 350-20-50-1. In addition, we note subsequent to your acquisition that your stock price, market capitalization, and operating results have declined and your net book value currently exceeds your market capitalization; however, we noted no revisions to your disclosures related to goodwill under critical accounting estimates in MD&A in subsequent quarterly filings that address these factors. Please revise future filings to address if and how declines in your stock price, market capitalization, and operating results impact your determination to test goodwill for impairment as of an interim date and, if not, explain why not. Please also revise future filings to explain if and how you consider market capitalization in determining the estimated fair values of reporting units. Refer to ASC 350-20-35-3C, ASC 350-20-35-22 to 24, and ASC 350-20-35-30.
  • We note that you performed an annual goodwill impairment test as of December 31, 2022, and recognized a goodwill impairment charge, which was driven by the reduction of the market value of your stock price in December 2022. Given the materiality of your goodwill balance and that your market capitalization continues to be significantly less than your total equity, please tell us and expand your disclosures to explain how you determined the amount of goodwill impairment charge to record. In order to provide useful and meaningful disclosures that provide investors with the information necessary to understand how you determined the amount of an impairment charge as well as the probability of a future goodwill impairment, please provide the following disclosures:
    • Your consideration of the current market capitalization in your determination of fair value
    • The percentage by which the estimated fair value exceeded carrying value as of the date of the most recent impairment test. Address how you determined such fair value in light of your current market capitalization
    • The specific critical assumptions used in your fair value determination
    • The degree of uncertainty associated with your key assumptions and how changes in key assumptions could impact your fair value determination
    • Potential events and/or changes in circumstances that could reasonably be expected to negatively affect your key assumptions.
  • Please disclose changes (if any) to the composition of one or more of your reporting units in connection with your segment reorganization and your basis for reassignment of goodwill to each reporting unit. Refer to ASC 350-20-35-45 and 46.
  • We note that your market capitalization decreased in the third quarter with the decline of your stock price from June to September. In addition, we note larger losses in the third quarter than in the second quarter as well as increased negative cash flows. Please explain your consideration of these facts and why these did not result in additional impairment testing as of the third quarter.
  • In future filings, please disclose the amount of goodwill allocated to each of your reportable segments and any significant changes in the allocation of goodwill by reportable segment for all periods presented in accordance with ASC 350-20-50-1.

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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