Goodwill Testing May Soon Get Simpler for Private Companies

November 22, 2013 Leave a comment

November 22, 2013, 3:14 AM ET

Goodwill Testing May Soon Get Simpler for Private Companies

EMILY CHASAN

Senior Editor

Annual tests companies use to check whether assets they have acquired have lost value and need to be written down could become simpler soon. The Financial Accounting Standards Board is set to decide on Monday whether to endorse changes proposed by its new Private Company Council that would let private firms choose to amortize so-called goodwill from past acquisitions on their balance sheets. The proposal would also allow simplify and limit the testing that triggers write-downs.If the board approves the changes next week, they would be written into U.S. Generally Accepted Accounting Principles.

The proposed rule change stems from feedback that the complex goodwill accounting valuation techniques public companies use are too costly for private companies, as well as research that showed users of private-company financial statements often disregard goodwill and goodwill impairments.

If companies choose the reduced disclosures, though, they could be setting themselves up for further costs down the road if they choose to go public.

“If you elected the alternatives under the PCC and then try to go public, from our perspective you’re going to have to undo those elections,” Paul Beswick, chief accountant at the Securities and Exchange Commission said at a Financial Executives International conference in New York this week.

Both public and private companies have spent years asking U.S. accounting rule makers to simplify the measurement rules around goodwill impairment testing, which led to a 2011 FASB rule change, that let all companies do a preliminary qualitative test on goodwill before proceeding with traditional quantitative tests.

The American Institute of Certified Public Accountants has received so many requests for assistance in completing goodwill valuations since write-downs peaked in the financial crisis that it released a 122-page guide this month to assist companies with their testing. It aims to bring more consistency to the process by helping companies work through the most complex examples. “Companies don’t want to incur the cost of a valuation expert, but when they try to do it themselves without being so knowledgeable they need more support,” said Yelena Mishkevich, senior technical manager at the AICPA.

Filed under Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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