Verizon Communications (NYSE:VZ)
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2 Months : From Sep 2019 to Nov 2019
By Mark Maurer
Company executives who were recently asked to weigh in on existing rules governing how companies account for goodwill in their financial statements say the standards have saddled them with unnecessary costs and are too subjective.
That feedback could help the Financial Accounting Standards Board, which sets U.S. accounting standards for companies, decide whether to propose changes to the current standards on goodwill, which is created when one company acquires another for more than the value of its hard assets.
The board in July had invited companies, auditors, investors and others to contribute comments on its current goodwill impairment model by submitting written feedback over a three-month period ending Oct. 7.
The invitation to comment was the latest effort in the FASB's research on the cost-effectiveness of proposed changes to financial reporting of goodwill, dating back to 2013. The accounting standard setter gave private companies the option to amortize goodwill in 2014, and offered nonprofits that option in May this year. But public companies still have no alternative and have been largely following the same rules, which since 2001 have required them to test goodwill for potential impairment each year.
The FASB's latest research is focused on the goodwill rules' impact on public companies, but the board is considering making larger changes that would affect all companies, according to the FASB's invitation to comment.
During the period, the FASB received a total of 95 letters, including ones from International Business Machines Corp., Ford Motor Co., Verizon Communications Inc., Eli Lilly & Co., Chevron Corp. and Cummins Inc.
The majority of companies that provided feedback for the study said the goodwill rule has room for improvement and that the FASB's updates over the years have simplified the process. But some went further in their critiques to say that associated costs outweigh any possible benefits. While public companies have expressed grievances with the rules in the past, the board is now seriously considering addressing those concerns.
The FASB is hosting a public roundtable to discuss the feedback on Nov. 15. In a statement, a FASB spokeswoman said the input "will help the board determine what direction it should take at this early stage of the project."
Engine maker Cummins continued to incur costs associated with hiring third-party valuation experts, developing cash-flow forecasts and determining discount rates for its annual goodwill impairment test, the Columbus, Ind.-based company's controller, Christopher Clulow, wrote in a statement.
A qualitative screen, which the FASB incorporated into the standard to reduce the cost to perform the goodwill impairment test in 2011, isn't enough, he said. "Even performing the qualitative screen can still prove to be costly and time-consuming due to the documentation required and review by the auditors," Mr. Clulow wrote.
Cigna, the Bloomfield, Conn.-based health insurer, found the current standard "operationally cumbersome," citing the time spent on the required documentation, review time examining the inputs and outputs, and an external auditor's involvement, Cigna's chief accounting officer, Mary Terese Agoglia Hoeltzel, wrote.
The FASB previously received feedback from companies requesting additional disclosures on goodwill and intangible assets to improve transparency. But New York-based Verizon, for one, said proposed additional disclosures on key performance assumptions and targets would introduce even more costs on a continuing basis.
The disclosures would also run counter to the U.S. Securities and Exchange Commission's recent push to simplify disclosures, Tracy Krause, Verizon's vice president of accounting and external reporting, wrote.
Respondents also offered suggestions for improving goodwill. To reduce the goodwill rule's subjectivity, Ford recommended the amortization of goodwill over a default period and testing for goodwill upon a triggering event instead of annually, wrote Julie Garity, the Dearborn, Mich., automaker's director of global accounting policy.
Write to Mark Maurer at firstname.lastname@example.org
(END) Dow Jones Newswires
October 14, 2019 05:44 ET (09:44 GMT)
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