So, how good is your goodwill?

The staff in the Division of Corporation Finance, as it has over the last several years, continues to ask questions about goodwill recoverability.  And, more importantly, the staff frequently asks for incremental disclosures about the risks surrounding goodwill recoverability in MD&A.

Forewarning disclosures, the complex known trend disclosure that got Sony into trouble when it had an unexpected goodwill write-off, are never easy. And, of course, they are very different from a risk factor. If you want a brief reminder, the Sony case is at:

http://www.sec.gov/litigation/admin/3440305.txt

Here is a very recent comment dealing with this issue:

1. We note that for 2013 you performed a quantitative assessment for Europe, India & Southeast Asia, and Middle East reporting units. Please tell us if you believe these reporting units are at risk of failing step one of the impairment test and your basis for this conclusion. Please also tell us, and in future filings disclose, the following related to the reporting units at risk of failing step one:

The percentage by which fair value exceeded carrying value as of the date of the most recent impairment test; and

•  The amount of goodwill allocated to these reporting units.

Alternatively, if in your view your reporting units are not at risk please disclose that fact. Refer to Item 303(a)(3)(ii) of Regulation S-K and Section V of Release 33-8350 for further guidance.

And, here is another similar comment, which even asks for disclosure regarding valuation approaches and assumptions:

We note that QiG continues to operate in a loss position and generates minimal revenues. We reference the disclosure that goodwill allocated to QiG is not at risk of failing step one of future impairment tests. Please revise future filings to disclose the specific valuation approach and underlying assumptions you used in determining the fair value of the QiG reporting unit to assess goodwill impairment. Please also clarify how you concluded that the fair value of the QiG reporting unit is substantially in excess of carrying value as of the date of your last impairment test.

So, if you are getting, or could get close on an impairment test, don’t forget known trend disclosure in MD&A!

As always, we welcome your comments and thoughts!