Changes to Goodwill Impairment Testing

 Effective for fiscal years beginning after December 15, 2011 (early adoption is permitted)  Accounting Standards Update 2011-08: Technical Corrections To  Various Topics changes the first step of goodwill impairment testing. Previously, the fair value of the reporting unit was compared to the carrying value of the reporting unit. If the fair value is less than the carrying value (of the reporting unit), then the fair value of the goodwill is compared to the carrying value of the goodwill. If the fair value is less than the carrying value (of the reporting unit), there the goodwill impairment is recognized.

After ASU 2011-08, the first step of the goodwill impairment test is a qualitative test to assess if goodwill is more likely than not to be impaired. An entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. An entity now has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. If the entity determines that it is more likely than not that goodwill is impaired, then the Goodwill impairment test proceeds under the former two step process discussed above.

ASC 820 (Formerly SFAS 157) Amended January 2010:

ASC 820 (formerly SFAS 157) has been significantly amended since its inception. ASU 2010-06 Improving Disclosures About Fair Value Measurements is a significant amendment effective for financial statements beginning after December 15, 2009 (except for disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements which are effective for fiscal years beginning after December 15, 2010). 

The essence of ASC 820 remains unchanged but there are some significant changes to disclosure requirements. Per ASU 2010-06.

ASC 820 Before ASU 2010-06		ASC 820 After ASU 2010-06
Transfers into and out of Level 3 (changes in valuation technique); discussion of changes in valuation techniques		Transfers into and out of Levels 1, 2, and 3 (changes in valuation technique); also requires disclosure of the reasons for the change
For Level 3 inputs, roll forward disclosure of purchases, sales, and settlements (net)		For Level 3 inputs, roll forward disclosure presenting separately information about purchases, sales, and settlements (on a gross basis rather than net)
Level Input disclosure to be presented for each major category of assets and liabilities		Level input disclosure for each class of assets and liabilities
The inputs and valuation techniques used to measure fair value and a discussion of changes in valuation techniques and related inputs, if any, during the period.		For fair value measurements using significant other observable inputs (Level 2) and significant unobservable inputs (Level 3), a description of the valuation technique (or multiple valuation techniques) used, such as the market approach, income approach, or the cost approach, and the inputs used determining the fair values of each class of assets or liabilities. If there has been a change in the valuation technique (for example, changing from a market approach to an income approach or the use of an additional valuation technique), the reporting entity shall disclose that change and the reason for making it.

The above is just a summary of some of the significant differences between ASC 820 disclosure requirements before and after ASU 2010-06. I recommend a good reading of ASU 2010-06 and the current ASC 820   if your financial statements or client's financial statements will be subject to the above fair value disclosures.

ASU 2010-25 -- Reclassifies Participant Loans

Prior to 12/15/10, participant loans were classified as investments in an Employee Benefit Plan. Effective for periods ending after December 15, 2010, ASU 2010-25 Plan Accounting – Defined Contribution Pension Plans (Topic 962) amends the ASC to reclassify participant loans from investments to notes receivable from participants. Participant loans are no longer subject to ASC 820 disclosure requirements. The provisions of ASU 2010-25 are to be applied retrospectively to all prior periods presented.

Under ASU 2010-25, current year and prior year participant loans should be classified as Notes Receivable from Participants under the Receivables section of the balance sheet. Appropriate disclosure of the Notes Receivable from Participants will need to be made in the Significant Accounting Policies note disclosure. The Participant loans will no longer be included in the ASC 820 disclosures.

The change in accounting principle will require disclosure in the year the Plan adopts ASU 2010-25. See ASC 250-10-50-1 through 250-10-50-3 for the required disclosures.

Participant loans should still be reported on Form 5500 Schedule H, Line 4i - Schedule of Assets (Held At End of Year).