Impairment Testing of Goodwill,
Indeﬁnite and Long-lived Assets In Impairment Testing of
Goodwill, Indeﬁnite and
the Current Environment Long-lived Assets in the
by PJ Patel, CFA, ASA ment amounts are allocated to identiﬁable Editors’ Column
impaired assets before ﬁnally determining
The current ﬁnancial and economic envi- goodwill impairment. No asset is impaired 3
ronment has had a signiﬁcant impact on to a value that is less than its fair value. Social Media: What Is It and
ﬁnancial statements. As companies test Should You Care?
their assets for impairment, many have Order of Operations
taken signiﬁcant non-cash impairments The testing methodology requires in-
Social Media Is Here To Stay
of goodwill, intangible assets, and even deﬁnite-lived assets to be tested ﬁrst,
PP&E, causing their balance sheets to followed by long-lived assets, and ﬁnally 7
shrink. As the economic turmoil persists, goodwill. In each step, the carrying value A Tale of Two FLP Estate Tax
companies will continue to recognize im- of assets is adjusted before subsequent Cases: Facts and Judges
pairments on a variety of assets. impairment tests. Differ
Under US GAAP, impairment testing is For instance, the order of operations for
ASB Adopts New Disclosure
covered by SFAS Nos. 142 and 144. SFAS impairment testing of a company with a Requirements for 2010-2011
No. 142 provides guidance on the testing single reporting unit which consists of a Edition of USPAP
and impairment of goodwill and indeﬁnite- single asset group and a single indeﬁnite-
lived intangibles; SFAS No. 144 provides lived trademark would be as follows. 15
guidance on the testing and impairment Calendar
of long-lived assets. These documents are 1. Trademark would be tested for impair-
supplemented by other FASB literature ment. If impaired, the carrying value of
such as SFAS No. 157, EITF 02-7, EITF the trademark would be adjusted for the
02-13 and various SEC speeches and audi- calculated amount of the impairment.
tor interpretations. 2. The asset group would be tested for
impairment by comparing undiscounted
cash ﬂows with the fair value of the as-
Background: set group including the trademark at its
The Structure of adjusted fair value.
Impairment Testing a. If the asset group was determined to
be impaired, the carrying value of
SFAS Nos. 142 and 144 collectively long lived assets would be adjusted
provide guidance for testing goodwill, for impairment. VOL. 10, ISSUE NO. 3
indeﬁnite-lived and long lived assets for 3. Goodwill impairment is tested by com-
impairment. While each asset category has
a unique testing methodology, together a
paring the fair value of the reporting
unit to the carrying value based on prior JULY
systematic approach (and closed model) adjustment/impairments. The fair value
for impairment testing is evident. Impair- CONTINUED ON PAGE 10 2009
Social Media: What Is It and Should You Care?
by Barbara Walters Price ■ “Attorney Thomas N. Shorter … a shareholder in the Madi-
son ofﬁce of Godfrey & Kahn, S.C., says he has LinkedIn
Overview set as his homepage. Every time one of his 200 or so con-
Social media tools have transformed the Web from a one- nections adds a connection, he is notiﬁed of that. If the new
way communication vehicle to a real-time and interactive connection is someone that Shorter would like to know
medium. professionally, he telephones his connection and asks him
or her to make an introduction. This has happened a number
This article is addressed to business valuation professionals. Its of times since joining LinkedIn … and he has garnered a
purpose is to help you make sense of social media and decide number of new cases and clients via this method.”
if it is right for you and your practice. ■ “Among the Davis & Kuelthau s.c. lawyers … was a partner
who was skeptical [of social media] at ﬁrst. But … in response
We will introduce a few tools that might be useful, talk about to two of his e-mails asking clients to connect, not only did
the potential beneﬁts and shortcomings of your participation, they accept his invitation, but also, they contacted him, saying
and suggest a strategy to help get started, should you decide “I’ve been meaning to get in touch with you about …. Two new
to test the waters. matters landed on his plate, with very little effort on his part.”
■ Rick Telberg, president and CEO of Bay Street Group LLC
Social Media Can Help You and Your Firm and well-known author of CPA Trendlines, retells the Twitter
The greatest potential beneﬁt of social media is its ability to success story of Andrew Rose, director of marketing and
generate broader exposure for you and your ﬁrm. This expo- business development of Naden/Lean CPAs of Timonium,
sure will result in: Maryland. Twitter helped Naden/Lean improve their search
engine ranking. Per Andrew: 2
■ Networking opportunities with current clients, as well as people
you would not otherwise have knowledge of or access to; … I started Twitter searching to see what people were
■ Increased trafﬁc to your Web site; saying, er, tweeting, about us. You can imagine my sur-
■ A rise in the search rankings for you and/or your ﬁrm; prise when I found a post related to an industry niche
■ Strengthening of your personal and professional brand; and blog we run describing how valuable our advice was. It
■ A powerful recruitment and retention tool for the millennial was from someone I didn’t know. So I began following
generation. him and thanked him for recognizing us in this public
FIGURE 1 And, the kicker? His tweet, reposting a link to our in-
dustry blog now ranks in the top 20 for a keyword in an
organic Google search.”
Focus on Giving, Not Getting
To be effective in social media, you need to approach it with
the right attitude. Focus on giving—providing information and
resources. From there, you will see the most beneﬁt.
Says Debra Helwig, marketing communications manager of
IGAF Worldwide and author of the blog Service Minded (www.
debrahelwig.wordpress.com) “All of it [social media] is putting
bread on the water. You have to focus on giving, not getting.
You must ﬁrst be ready to learn and absorb and give back.”
Select the Right Tools
Many successful business appraisers get their best work by It has been said that 80 percent of the fuel on the space shuttle
word-of-mouth marketing (referrals). Increasingly, social is used to get the shuttle into orbit, and rest of the mission relies
media is moving word-of-mouth marketing online. Here are upon the remaining 20 percent. So it is with social media. 80
some examples of this phenomenon from law ﬁrms using percent of your efforts will be dedicated to just getting off the
LinkedIn1 and Twitter: ground, so choosing the right tool is important.
CONTINUED ON PAGE 4
While it is easy to set up a blog, it is difﬁcult to maintain one. YouTube. YouTube allows users to upload and share video clips.
This is the reason it is listed fourth in order of importance You can also paste videos from YouTube to blogs, Web sites, and
on my list. A blog needs to have a sharp content focus and other social networking sites. Videos appear in Google search results
be constantly fed. Authors should post at least twice a week, and video. If thoughtfully done,YouTube can be an effective way to
preferably three times a week. This requires a large commit- present yourself, your ﬁrm, or a particular topic of interest.
ment of time and resources.
These are some of the most popular social media tools and
There is currently a void in the business valuation space for a well- those I believe might be most beneﬁcial to readers. This list is
written blog. Only a few business valuation-themed blogs could not all-inclusive. A more comprehensive list of social media
be identiﬁed for this article and they are not often updated. marketing tools can be found at the blog Junta42blog.15
Before you begin to blog, know what your blog will be about, Be Aware of the Possible Shortcomings
identify the author(s), draft several posts for future publication, Social media is not a panacea and it is not for everyone. Al-
and commit to it for at least a year. Then decide upon the ap- ways keep in mind that there are opportunity costs attached
propriate blogging platform for your needs, design, and launch. to everything we do. Consider the following:
Promote your blog in all your other marketing channels, link
to other blogs, and leave comments on other blogs. 1. Time. One of the biggest opportunity costs is time. Social media
participation can be time intensive. Many marketing experts
Jerry Work, president of Work Media Internet Marketing, says advise posting to a blog at least three times a week, tweeting at
“Really, you just have to remember that you’re not blogging least three to ﬁve times a day, updating your status on LinkedIn
just to sell stuff—you are trying to build a community of several times a week, participating in pertinent group discus-
people who are interested in what you have to say, and you sions, and updating your Facebook status several times a week.
are participating in a larger community-wide discussion that Social media can easily consume half an eight-hour workday
involves your blogs, as well as the blogs of others.”12 or more if you don’t have concrete goals and parameters.
2. Loose Cannons. Understand that you cannot always control the
Facebook. Lastly, consider joining Facebook. It is the most popu- message. If your employees are engaged in social media, there
lar free-access social networking site with more than 200 million is always the possibility that they may post something unﬂatter-
users worldwide and over 60 million in the United States.13 ing. For example, this year, an ad agency executive representing
Ketchum was in town to make a digital media presentation to
According to the istrategylabs.com 2009 Facebook Demo- his client, FedEx, headquartered in Memphis, Tennessee.
graphics and Statistics report, the 35-54 year old demographic The ad agency executive got into trouble when he tweeted
is growing fastest, followed by the 55-or-older group. The unﬂattering remarks about the city of Memphis. It turns out
25-34 year population is doubling every six months.14 that FedEx workers were among his Twitter followers and
they did not react well to a vendor insulting their city. It
Facebook is primarily used for personal social networking (cur- caused embarrassment on many levels.
rent friends, old friends from high school and college, family, Here’s the takeaway: If you, as an individual, believe in the
etc.). Contacts are called “friends.” But many users also incor- virtues of being blunt, stay away from social media. People
porate professional applications. People use the status updates forget the massive reach of social media. Also, be aware that
feature on Facebook to inform their network about blog posts, many, if not most, of your employees or colleagues are already
videos, or other items of broader professional interest. engaged in social media in some form. A prudent course of
action is to instate a social media policy at your ﬁrm.16
Consider These As Well In another example, two employees at Domino’s Pizza posted
HARO. Subscribe to HARO, or Help a Reporter Out. Philip a supposedly humorous video on YouTube in which they were
Shankman, a self-described CEO, entrepreneur, and adven- doing some disgusting things while making sandwiches. That
turer, began this project. Over 100,000 people subscribe to this video “went viral.” While these were isolated acts by employees
free service. They receive at least three e-mails a day ﬁlled who claimed they didn’t serve the contaminated food, they were
with queries from reporters about stories they are working on. subsequently arrested for food tampering and Domino’s had a
The queries range from lifestyle to technology to business. If huge PR catastrophe to deal with.
you see a query you can answer, contact the reporter directly. 3. Distraction. Don’t ignore your other marketing tools. Social
To subscribe, visit http://www.helpareporter.com. media can distract you from the importance of maintaining
your other marketing strategies. Before spending a great deal
Ning. Ning allows you to create your own social network of time on social media, make sure your Web site is up-to-
around a subject of interest with your own visual design, choice date and full of useful content. Your Web site is still your
of features and member data. Customization is an important premier marketing tool and each social media tool should
feature, as users automatically have a customizable proﬁle drive trafﬁc to it. Don’t neglect e-mail newsletters, direct
page. Ning offers both free and paid options. CONTINUED ON PAGE 6
state-of-the-blogosphere/the-what-and-why-of-blogging/. 54% of blogs Junta42blog, http://blog.junta42.com/content_marketing_
tracked focused on personal/lifestyle subjects. 27% of blogs tracked fo- blog/2009/06/42-online-content-sharing-and-productivity-tools.html.
cused on business topics. For a good example of a social media policy template, see Law.
Quoted from the soon-to-be-released, yet-to-be-titled social networking com Legal Technology, Wong, James (June 15, 2009), “Draft-
book written by Jerry Work of Work Media Internet Marketing. Jerry gra- ing Trouble-Free Social Media Policies,” http://www.law.com/jsp/
ciously allowed me to review a draft copy. It is packed with useful infor- legaltechnology/pubArticleLT.jsp?id=1202431410095&src=EMC-
mation and it is not written in techo-speak. Any professional can pick it up Email&et=editorial&bu=LTN&pt=Law%20Technology%20News&cn=l
and glean helpful information immediately to allow them to get started in tnda_20090615&kw=Drafting%20Trouble-Free%20Social%20Media%2-
social media. Visit http://.workmedia.net to inquire about the book. 0Policies (Accessed June 17, 2009).
Wikipedia, http://en.wikipedia.org/wiki/Facebook. (Accessed June 14, 2009). Comment from Adrian Eden (June 10, 2009) to the post “5 Biggest Les-
Istrategylabs, http://www.istrategylabs.com/2009-facebook-demograph- sons I’ve Learned About Using Social Media” by Kelly Hutson (Pro-
ics-and-statistics-report-276-growth-in-35-54-year-old-users/ (Accessed Communicator.com). http://www.procommunicator.com/social-media/
June 14, 2009). the-5-biggest-things-ive-learned-about-using-social-media.
A Tale of Two FLP Estate Tax Cases:
Facts and Judges Differ
by Owen G. Fiore, JD then concluded the second round of contributed assets were
essentially testamentary in nature. Therefore, no discount was
Overview allowed as the FLP was ignored for estate tax purposes.
In the last issue of Business Valuation Alert, the author provided
a review of recent judicial decisions considering the gift and The Jorgensen Case
estate tax valuation discount viability of family limited partner- One readily can see where Tax Court Judge Haines was
ships (FLPs) and family limited liability companies (FLLCs). headed by a statement included in his opinion, namely, that it
In addition, “factors for success” with FLPs and FLLCs were was “…especially signiﬁcant that the transactions were not at
outlined to encourage successful, positive planning. Now recent arms-length and that the partnerships held a largely untraded
cases underscore the importance of carefully developed plan- portfolio of marketable securities.” The court did not believe
ning and the necessity for monitoring FLP/FLLC plans. there was enough investment activity or that the use of the FLP
was needed, other than as merely a “discounting device.”
This article reviews the speciﬁcs and planning impact of two more
FLP estate tax cases, namely, Estate of Erma V. Jorgensen v. Com- The author has discussed the opinion with the estate’s counsel
missioner1 and Estate of Valeria Miller v. Commissioner.2 and it appears possible that signiﬁcant pro-taxpayer evidence
was overlooked or discarded by the court, so an appeal to the
Perhaps the primary lesson to be learned in analyzing these 9th Circuit Court of Appeals is possible.
new cases is that each FLP/FLLC case is unique, not only by
reason of varying facts but also due to the individual Tax Court 1. Facts Are Important. Col. Jorgensen, a lawyer and career U.S.
judge’s evaluation of case speciﬁcs and developed views on Air Force pilot, directed the family’s ﬁnancial affairs. He gradu-
estate tax issues involved. ally and carefully built up over a $2 million marketable securities
portfolio. Gerald Jorgensen and his wife, Erma, were residents
While in neither of the recent Tax Court cases was valuation an of Virginia and had two children and six grandchildren.
issue at trial, business valuation appraisers can learn from these The thrust of the ﬁrst of two FLPs, which was established
cases about the key factors considered important in determin- in 1995, was to develop a plan that would allow for annual
ing whether the pass-through entity—an FLP, FLLC or even gift transfers of partnership interests to the Jorgensen chil-
an S corporation—will be respected for estate tax purposes. dren and grandchildren. And, in point of fact, in the ﬁrst
Respecting the entity is what brings into play the “fair market FLP, “discounting” was not even a goal!
value” determination of entity equity interests rather than only Col. Jorgensen died in 1996, and thereafter, in advising Erma
valuing the entity’s underlying assets. on her estate planning, two different lawyers emphasized valu-
ation discounts. Their letters, which left unsaid many points
In both Jorgensen and Miller, the FLP(s) owned principally mar- apparently, were obtained by the IRS through discovery pro-
ketable securities. While in Jorgensen, two separate FLPs failed ceedings. Judge Haines seemed to input to Erma Jorgensen and
to achieve estate tax recognition, the court in Miller recognized her family the lawyers’ suggestions, rather than to concentrate
the initial set of contributed assets to the FLP as resulting in a on Erma herself and her motivations for the partnerships.
35 percent valuation discount from net asset value (NAV); and CONTINUED ON PAGE 8
documented approach, taking into account these two recent End Notes
cases as well as the “factors for success” presented in the Jorgensen v. Comm’r, T.C. Memo. 2009-66 (3/26/09).
previous article. FLP/FLLC planning most likely will remain Miller v. Comm’r, T.C. 2008-128 (5/27/09).
viable, but perhaps at greater risk and cost. Estate of Bongard v. Comm’r, 124 TC 95 (2005); see also, Estates of
Stone, T.C. Memo. 2003-309.
Owen G. Fiore, JD, FioreWealthPlanningConsulting, is a past Estate of Soberdash v. Comm’r, T.C. Memo. 1997-362.
contributor of BV Alert. His non-lawyer consulting practice 5 H.R. 436, the “Pomeroy Bill,” introduced January, 2009. Section
regularly involves valuation issues and the use of entities and 4 thereof proposes substantial restrictions on passive investment en-
techniques to preserve wealth. For more information (as well tity valuation discounts and also restrictions on minority discounts
as to obtain copies of regular newsletters on these and other where a family (with broadly determined attribution of ownership)
topics), go to Owen’s Web site at www.owenﬁore.com. ◆ has control of the entity.
ASB Adopts New Disclosure Requirements for 2010–
2011 Edition of USPAP
At its public meeting in New Orleans, The Appraisal Foun- ered prior to accepting an assignment, disclosure must be made
dation’s Appraisal Standards Board (ASB) adopted revisions whenever the prior relationship is discovered. The disclosure
for the next edition of the Uniform Standards of Professional requirement applies to report certiﬁcation.
Appraisal Practice (USPAP). The revised edition of USPAP
will be in effect for two years, starting January 1, 2010 and New Disclosure Requirement Necessary
ending December 31, 2011. for Preserving Public Trust
“We understand this new obligation may be unpopular
While the 2010-2011 edition of USPAP is scheduled to be avail- with some appraisers,” says Sandra Guilfoil, Chair of the
able on October 1, 2009, the ASB is recommending that appraisers ASB. She adds that the ASB is doing its best to provide
and their clients familiarize with the upcoming changes as soon as guidance regarding the new requirement which the ASB
possible. To facilitate this early education, the ASB has released believes to be necessary for securing public trust in the
Summary of Actions Related to Proposed Changes, a document appraisal profession.
that outlines and explains the upcoming changes to USPAP.
In a current climate with a focus on things like transparency in
ASB Highlights Two Changes ﬁnancial transactions,” says Guilfoil, “the ASB did not believe
The ASB is highlighting two of the most significant chang- that USPAP was adequately serving public trust by allowing an
es to USPAP. One of these two changes is the elimination appraiser to complete an assignment without initially notifying
of the requirement for appraisers to allow clients access the client of any recent involvement with the property,”
to work files when preparing a Restricted Use Appraisal
Report. The ASB decided that this Ethics rule statement In addition to the Summary of Actions Related to Proposed
is unnecessary because of the existing requirement that Changes document, the ASB released a series of Q&As on the
all appraisal reports contain sufficient information to en- topic for additional guidance. The Q&A clariﬁes conﬁdential-
able the intended users of the appraisal to understand the ity issues and other concerns. “We encourage appraisers and
report properly. users of appraisal services to read through the Summary of
Actions now, and thoroughly familiarize themselves with the
The second change the ASB anticipates will be more controversial. requirements well in advance of the January 1, 2010 effective
Under the 2010-2011 edition of USPAP, in the Conduct section date,” says Guilfoil.
of the Ethics Rule, appraisers will be obligated to notify clients of
any involvement with the subject property within the prior three The Summary of Actions Related to Proposed Changes (April 3,
years. The obligation covers services in regards to property as an 2009) can be accessed at The Appraisal Foundation’s Web site:
appraiser or in any other capacity, such as property management, www.appraisalfoundation.org/Summary_of_Actions_2010-
leasing, brokerage, auction, or investment advisory services. 11_USPAP. The USPAP Q&A (Vol. 11, No. 4, April 2009)
on the new disclosure requirement is available here: www.
Appraisers must provide this disclosure up front, prior to ac- appraisalfoundation.org/s_appraisal/bin.asp?SID=1&DID=1
cepting an assignment. If the prior involvement is not discov- 351&CID=12&VID=2&DOC=File.PDF. ◆
Testing Criteria Figure 1
Long-lived assets are tested only when events or
changes in circumstances occur and potentially
cause them to be impaired. A listing of events or ASSET
changes in circumstances provided in SFAS No.
144 is provided below. This list is illustrative,
though not comprehensive:
a. A signiﬁcant decrease in the market price of GOODWILL
PP & E TRADEMARK CUSTOMER TECHNOLOGY (if asset group
a long-lived asset (asset group). RELATIONSHIPS =
b. A significant adverse change in the extent reporting group)
or manner in which a long-lived asset (as-
set group) is being used or in its physical
c. A signiﬁcant adverse change in legal factors or in the busi- For purposes of this Statement, impairment is the condition
ness climate that could affect the value of a long-lived asset that exists when the carrying amount of a long-lived asset
(asset group), including an adverse action or assessment by (asset group) exceeds its fair value. An impairment loss
a regulator. shall be recognized only if the carrying amount of a long-
d. An accumulation of costs signiﬁcantly in excess of the lived asset (asset group) is not recoverable and exceeds
amount originally expected for the acquisition or construc- its fair value. The carrying amount of a long-lived asset
tion of a long-lived asset (asset group). (asset group) is not recoverable if it exceeds the sum of the
e. A current-period operating or cash ﬂow loss combined with undiscounted cash ﬂows expected to result from the use
a history of operating or cash ﬂow losses or a projection or and eventual disposition of the asset (asset group). That
forecast that demonstrates continuing losses associated with assessment shall be based on the carrying amount of the
the use of a long-lived asset (asset group). asset (asset group) at the date it is tested for recoverabil-
f. A current expectation that, more likely than not, a long- ity, whether in use (paragraph 19) or under development
lived asset (asset group) will be sold or otherwise disposed (paragraph 20). An impairment loss shall be measured as
of signiﬁcantly before the end of its previously estimated the amount by which the carrying amount of a long-lived
useful life. asset (asset group) exceeds its fair value.
Over the past six to nine months, many companies have expe- Step 1: Testing the Assets for Recoverability
rienced a triggering event, resulting in an increase in the need
for impairment testing of long-lived assets. In Step 1, the assets are tested for recoverability. This involves
comparing the undiscounted cash ﬂows of the asset group with
Testing Methodology its carrying value. There are several key inputs in completing
The structure of the testing of long-lived assets is a controver- the undiscounted cash ﬂow test:
sial issue—many valuers believe (View 1) that assets are ag- CONTINUED ON PAGE 12
gregated (regardless of whether they are tangible or intangible
assets) and tested at the lowest level for which identiﬁable Figure 2
cash ﬂows are largely independent of the cash ﬂows of other
groups of assets and liabilities.
While others believe (View 2) that the FASB only meant for PP&E
assets to be grouped while intangible assets should be tested indi-
vidually, as cash ﬂows relating to intangible assets can be identi-
ﬁed (similar to the approach used in a purchase price allocation)
and therefore represent the lowest levels of cash ﬂows. REPORTING
UNIT 1 REPORTING UNIT 2
Our interpretation of the guidance is consistent with the former
and, as such, it is our belief that assets should be grouped at
the lowest level of independent cash ﬂows and that the asset
group can include both tangible and intangible assets.
ASSET ASSET ASSET ASSET
GROUP GROUP 1 GROUP 2 GROUP 3
Impairment testing of long-lived assets is a multi step process.
Paragraph 7 of SFAS No. 144 describes impairment as follows:
unit is calculated and compared to the Table 2
carrying value to determine if impairment Asset Group Book % of Fair Pro –Rata Allocation Adjusted Book
exists. If the fair value is less than the 3 Value Total Value Allocation of Value
carrying value, further calculations are impairment
required in order to determine the fair Working $10 n/a 0 0 $10
value of goodwill. Capital
Fixed Assets 20 40% 18 4 2 18
The level of testing for goodwill impair-
ment is somewhat controversial. Some
valuers (View 1) believe that Step 1 of Customer 10 20% 12 2 0 10
goodwill impairment testing should be relationships
completed at a total asset or enterprise
Technology 20 40% 7 4 8 12
value level, while others (View 2) believe
that Step 1 of goodwill impairment testing Total 60 10 10 50
should be completed at the equity level.
While there are a number of arguments
on either side, it is our belief that the including goodwill.....If the fair value of a reporting
enterprise value level is most appropriate because it is more unit exceeds its carrying amount, goodwill of the
objective in determining whether or not asset impairment reporting unit is considered not impaired, thus the
is indicated. Testing at the equity level may be skewed by second step of the impairment test is unnecessary. If
negative equity or by complications in the determination of the carrying amount of a reporting unit exceeds its
the value of equity after consideration of the fair value of fair value, the second step of the goodwill impair-
debt without reflection of the ability to adhere to specific ment test shall be performed to measure the amount
payment terms. of impairment loss, if any.
Testing Criteria The fair value is determined consistent with SFAS No. 157.
SFAS No. 142 requires companies to test for impairment an- In addition, the value of the reporting unit should consider (as
nually or more frequently if an event occurs or circumstances per EITF 02-13) whether the reporting unit would be sold in
change that would more likely than not reduce the fair value a taxable or non-taxable transaction.
of a reporting unit below its carrying amount. The indicators
noted are as follows: This calculation is fairly complex and will likely require
assistance from the company’s tax department in order
a. A signiﬁcant adverse change in legal factors or in the busi- to determine if any incremental value would arise from
ness climate. structuring the sale of the reporting unit in a taxable or
b. An adverse action or assessment by a regulator. non-taxable transaction. There is a debate whether this
c. Unanticipated competition. is within the scope of services provided by the valuation
d. A loss of key personnel. professional.
e. A more-likely-than-not expectation that a reporting unit
or a signiﬁcant portion of a reporting unit will be sold or In the current economic environment, the equity of many
otherwise disposed of. companies is trading at values below their carrying values
f. The testing for recoverability under Statement 144 of a (i.e., their market capitalization is below the carrying value
signiﬁcant asset group within a reporting unit. of their book equity). While this is not an absolute indication
g. Recognition of a goodwill impairment loss in the ﬁnancial state- that goodwill impairment exists, it is a signiﬁcant identiﬁer
ments of a subsidiary that is a component of a reporting unit. that goodwill impairment may exist whether the test is com-
pleted at the equity or enterprise value level. As part of this
issue, companies, valuers, and auditors have seen a renewed
Testing Methodology discussion of control premiums. For example:
Step 1: Identifying Potential Impairment
■ Does the market capitalization reﬂect the fair value of a
The excerpt below from paragraph 19 of SFAS No. 142 high- company?
lights the Step 1 test: ■ What if the company consists of multiple reporting units?
■ Does the market value of a company’s equity reﬂect the
19. The first step of the goodwill impairment test, fair value of debt or the obligation related to debt from the
used to identify potential impairment, compares the perspective of equity holders?
fair value of a reporting unit with its carrying amount, CONTINUED ON PAGE 14
AUGUST NACVA. The National Association of Certiﬁed Valuation
Analysts is offering a Business Valuation and Certiﬁcation
ASA. The American Society of Appraisers is offering the Training Center on September 14–19 in San Francisco,
courses The Market Approach and Valuation of Intangible CA and on September 21–26 in Chicago, IL. Contact:
Assets for Financial Reporting Purposes from August NACVA, 1111 Brickyard Road, Suite 200, Salt Lake City,
13–16 at the Double Tree Hotel and Conference Center, UT 84106-5401; call 800-677-2009 or 801-486-0600; or
Chicago North Shore, Skokie, IL. Contact: American Soci- fax 801-486-7500.
ety of Appraisers Headquarters, 555 Herndon Pkwy, Suite www.nacva.com
125, Herndon, VA 20170; call (800) ASA-VALU.
www.appraisers.org IBA. The Institute of Business Appraisers is offering
the courses Essentials of Business Appraisal on Sep-
NACVA. The National Association of Certiﬁed Valuation tember 21–25, Business Appraisal Review Accreditation
Analysts is offering a Business Valuation and Certiﬁcation Workshop on September 22–26, Report Writing, Review
Training Center on August 10–15 in Philadelphia, PA and on & Analysis on September 23–24, and Preparation for
August 17–22 in Milwaukee, WI. Contact: NACVA, 1111 the CBA Written Exam on September 26, at the Palmer
Brickyard Road, Suite 200, Salt Lake City, UT 84106-5401; House Hilton Hotel, Chicago, IL. Contact: IBA, P.O.
call 800-677-2009 or 801-486-0600; or fax 801-486-7500. Box 17410, Plantation, FL 33318; call 954-584-1144;
www.nacva.com or fax 954-584-1184.
AICPA. The American Institute of Certiﬁed Public Ac-
countants is offering the AICPA National Business Valu-
ation School on August 17–21, Lewisville, TX. Contact:
AICPA Member Service Center, Conferences, 220 Leigh
Farm Road, Durham, NC 27707-8110; call 888-777-7077; ASA. The American Society of Appraisers is offering the
or fax 800-870-6611. courses CAVSMC—Monte Carlo Simulation: Extensions
www.cpa2biz.com/conferences in Valuation Part I on October 17, CAVSRO Real Options
Valuation: Extensions in Value Part II on October 18,
CAVS123R—CAVS123R/409A on October 21-22, and
SEPTEMBER CAVSCC—Cost of Capital on October 21–22, at the
Boston Marriott Copley Place, Boston, MA. The ASA
ASA. The American Society of Appraisers is offering the is also offering the courses The Income Approach and
courses Introduction to Business Valuation and Business Introduction to Business Valuation from October 1–4 at
Valuation Case Study from September 10–13 at the Loews the Manhattan Beach Marriot, Manhattan Beach, CA.
Annapolis Hotel, Annapolis, MD. Contact: American Soci- Contact: American Society of Appraisers Headquarters,
ety of Appraisers Headquarters, 555 Herndon Pkwy, Suite 555 Herndon Pkwy, Suite 125, Herndon, VA 20170; call
125, Herndon, VA 20170; call (800) ASA-VALU. (800) ASA-VALU.
AICPA. The American Institute of Certiﬁed Public Ac- NACVA. The National Association of Certiﬁed Valuation
countants is offering the AICPA National Forensic Account- Analysts is offering a Business Valuation and Certiﬁcation
ing Conference on September 23–25, San Francisco, CA. Training Center on October 26–31 in New Orleans, LA.
Contact: AICPA Member Service Center, Conferences, 220 Contact: NACVA, 1111 Brickyard Road, Suite 200, Salt
Leigh Farm Road, Durham, NC 27707-8110; call 888-777- Lake City, UT 84106-5401; call 800-677-2009 or 801-486-
7077; or fax 800-870-6611. 0600; or fax 801-486-7500.