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ASC 350 Impairment Testing


Media and emerging technology companies are faced with ever changing accounting and regulatory compliance activities. Financial Accounting Standards Board (FASB) Accounting Standards Codification 350 Intangibles - Goodwill and Other (ASC 350) and Accounting Standards Codification 360 Property, Plant and Equipment (ASC 360), formerly known as FAS 142 Goodwill and other Intangible Assets and FAS 144 Accounting for the Impairment or Disposal of Long-Lived Assets, are two requirements any company with GAAP-based financial statements must address.  ASC 350 and ASC 360 address the impairment of both tangible and intangible assets.


ASC 350 requires that intangible assets without determinable lives be reviewed for impairment, while ASC 360 requires testing for impairment of long-lived assets with a determinable life.  A recognized intangible asset with a determinable life should be amortized over its anticipated useful life.  The amortization must reflect any anticipated residual value associated with the asset.  By contrast, an intangible asset with an indefinite useful life should not be amortized until its life can be determined.  Both types of intangible assets must be tested for impairment in cases where impairment may have occurred. 


Regarding these assets, the appropriate tests differ.  For assets with determinable lives, the sum of the undiscounted cash flows over the life of the asset is compared to the carrying value, in accordance with ASC 360.  If the sum of the undiscounted cash flows does not exceed the carrying value, impairment exists and the Fair Value must be determined, with a loss equaling the difference between the Fair Value and the carrying amount recognized.  For goodwill and other intangible assets without determinable lives (those that are not subject to amortization), the test consists of comparing the Fair Value of the asset to its carrying amount.  Where necessary, an impairment loss equal to the difference must be recognized.


The staff at Bond & Pecaro, Inc. assists a large number of public and private companies with their financial reporting compliance activities each year.  For example, Bond and Pecaro was retained by a large telecommunications company to determine if their Indefeasible Rights of Use agreements with another telecom company for its network of submarine fiber optic cable were impaired in accordance with its ASC 360 compliance activities The assignment required the construction of undiscounted cash flow models for each Indefeasible Rights of Use contract.  For those contracts where the carrying value of the assets was not recoverable from its cash flows, the Fair Value was determined using both market approaches.  Guidance suggests that quoted market prices in active markets are the best evidence of fair value. A market analysis of the recent sales of similar assets provided an indication of the current value of the subject assets. As another example, Bond and Pecaro annually tests for the impairment of the FCC Licenses and goodwill at hundreds of television and radio stations for the parent companies’ ASC 350 compliance activities.  This testing relies on both the income and market approaches to valuation. 


The staff at Bond and Pecaro works directly with each companies auditors and management team to facilitate the review process and produce results in a highly cost effective way. In assisting companies with their compliance with the requirements of ASC 350 and 360, we have routinely assisted company management in the audit review process with the 4 largest accounting firms, as well as a variety of smaller and regional accounting firms.


Financial accounting rules and regulations have become more complex in recent years.  Regulations are constantly changing and being updated.   For example Accounting Standards Update (ASU) no. 2011-08, Intangibles — Goodwill and Other (Topic 350): Testing Goodwill for Impairment recently made additional changes to companies’ testing requirements.   The update gives entities the option of testing qualitative factors to determine whether the indefinite-lived intangible assets are impaired.  In recent years, FASB has also issued clarifications on Fair Value Measurements and issued proposals on how the carrying amount of reporting units should be calculated.  Similarly, the SEC has provided guidance on disclosures and reporting standards for impairment analyses.  Given the large number of projects prepared by Bond & Pecaro each year, we are acutely aware of these changes and incorporate them into our appraisal reports.


In this constantly changing environment of financial and regulatory reporting requirements, Bond & Pecaro’s valuation reports provide clients with the essential information needed to comply with current financial reporting guidelines.