Question

You are a senior accounting specialist at a large company that makes high-quality apparel. The company also has 45 retail stores where its manufactured brands as well as other brands are sold. On your financial statements, you have a goodwill balance of $425 million. This amount is split between three business segments as follows: US Retail Operation $200 million; US Manufacturing Operations $195 million and International Operations $30 million.

1. Should your company be a private company, are there different accounting guidance available, please explain.

Answer 1

Both US GAAP and IFRS define intangible assets as non-monetary assets without physical substance. The recognition criteria for both accounting models require that there be probable future economic benefits and costs that can be reliably measured, although some costs are never capitalized as intangible assets (e.g., start-up costs).

Goodwill is recognized only in a business combination in accordance with ASC 805 and IFRS 3(R). With the exception of development costs (addressed below), internally developed intangibles are not recognized as assets under either ASC 350 or IAS 38. Goodwill is never amortized.

Both standards require goodwill and intangible assets with indefinite lives to be reviewed at least annually for impairment and more frequently if impairment indicators are present. In addition, both US GAAP and IFRS require that the impaired asset be written down and an impairment loss is recognized.

As per US GAAP, Goodwill is allocated to a reporting unit, which is defined as an operating segment or one level below an operating segment (component), whereas as per IFRS, Goodwill is allocated to a cash-generating unit (CGU) or group of CGUs that represents the lowest level within the entity at which the goodwill is monitored for internal management purposes and cannot be larger than an operating segment as defined in IFRS 8, Operating Segments.

The U.S. Securities and Exchange Commission (SEC) requires publicly traded companies to follow GAAP in addition to other SEC rules. Small, private companies are generally not required to use GAAP because many of the rules do not apply.