CUNA Regulatory Comment Call

March 1, 2001

Accounting for Goodwill in Mergers



The Financial Accounting Standards Board (FASB) has voted to eliminate the use of the pooling-of-interests method of accounting for mergers; a final rule is expected in June 2001. Under pooling, two institutions simply combine their balance sheets, avoiding a reduction in earnings. Instead, organizations now will be required to record the merger as a purchase. The purchase method requires organizations to account for goodwill - the difference between the price paid for an acquisition and the book value of the acquired assets. With the purchase method accounting, when the acquiring organization records goodwill it must amortize it, or write down its value, over a period that can last as long as 40 years. As a result, the amount of earnings shown on the income statement is reduced.

To soften the blow of the imminent rule change to the purchase method of accounting, FASB issued a limited exposure draft, proposed Statement of Financial Accounting Standards: Business Combinations and Intangible Assets - Accounting for Goodwill, containing a compromise. Under the draft proposal's "impairment only" approach, organizations would be allowed to carry goodwill on their asset sheets unless it is "impaired," or has declined in value. Organizations would be required to periodically test the value of goodwill to determine whether the goodwill is more than its fair value. The proposal lays out a number of events, such as a change in the competitive landscape or loss of key personnel, which would require the organization to re-test the goodwill to check for impairment. In the periods in which a loss of value is detected, the organization would have to take a charge against earnings equal to the difference. As a further compromise, pre-existing goodwill - that is, goodwill on the balance sheet before the issuance of the planned standards - no longer would have to be amortized.

Comments on the temporary and proposed regulations are due by March 16, 2001. Please submit your comments to CUNA by March 13, 2001. Please feel free to fax your responses to CUNA at 202-371-8240; e-mail them to Associate General Counsel Mary Dunn at or to Senior Regulatory Counsel Catherine Orr at; or mail them to Mary or Catherine c/o CUNA's Regulatory Advocacy Department, 805 15th Street, NW, Suite 300, Washington, DC 20005. If you would like to submit you comments directly to FASB, the address is Financial Accounting Standards Board of the Financial Accounting Foundation, ATTN: RTA Director - File Reference 201-R, 401 Merritt 7, P.O. Box 5116, Norwalk, Connecticut 06856-5116; to submit comments to FASB electronically, send e-mail to and indicate File Reference 201-R. If you submit comments directly to FASB, please also forward a copy of your comments to CUNA. You may contact CUNA if you would like a copy of the proposed Statement or you may access it on FASB's Web site at the following address:


Click here to see a more detailed executive summary of the proposed Statement.


Impairment Review of Goodwill

Financial Statement Presentation


Transition and Effective Date


Nonamortization of Goodwill

The revised Exposure Draft would require that goodwill not be amortized in any circumstance. The carrying amount of goodwill would be reduced only if it was found to be impaired or was associated with assets to be sold or otherwise disposed of.

  1. Do you agree with the Board's conclusion that goodwill is not a wasting asset if an entity is able to maintain the value of goodwill?

    Yes ________ No ________

    If not, why not?

  2. Do you agree that requiring all goodwill not to be amortized (but to be reduced in value when it is impaired) will result in more useful financial information than requiring goodwill to be amortized in all circumstances or permitting goodwill to be amortized in certain circumstances?

    Yes ________ No ________

    If not, which alternative would be preferable and why?

    Goodwill Impairment Test

  3. This Statement would require that a benchmark assessment be performed whenever the net assets of an entity are changed substantially due to an acquisition and the goodwill of that entity is significant in relation to the book value of its other net assets. In addition, a benchmark assessment would be performed whenever an entity is significantly modified by a reorganization of an entity's reporting structure and the goodwill of that entity is significant in relation to the carrying amount of its other net assets. The proposed Statement would require those benchmark assessments to be completed within one year of the date of the acquisition or at the date of the reorganization that gave rise to the benchmark assessment.

    Is that time frame appropriate to perform a benchmark assessment?

    Yes ________ No ________

    If not, what time frame would be appropriate and why?

  4. This proposed Statement provides examples of events or circumstances that would require goodwill of an entity to be tested for impairment.

    Are those indicators of potential impairment appropriate?

    Yes ________ No ________

    If not, which of the examples should be modified and how?

    Are there additional examples that should be included?

    Yes ________ No ________

    If so, please describe the additional examples.

  5. This proposed Statement would require that a goodwill impairment loss be recognized if the fair value of a reporting unit's goodwill is less than its book value. The fair value of goodwill would be determined by subtracting fair value (with certain exceptions) of the recognized net assets of the reporting unit excluding goodwill from the fair value of the reporting unit. The process of determining the fair value of goodwill is similar to the process of determining the amount of goodwill that would be recognized if the entity was purchased at its fair value but the purchase price allocation was restricted to the net assets, other than goodwill, recognized prior to the business combination.

    Do you believe that the proposed impairment test is operational and that it will adequately capture a decline in the value of goodwill?

    Yes ________ No ________

    If not, please explain why not and describe an operational impairment test that would adequately capture a decline in the value of goodwill.

    Do you agree with the Board's conclusion that subtracting the fair value (with certain exceptions) of recognized net assets from the fair value of reporting unit results in an impairment test that strikes an appropriate balance between costs and benefits?

    Yes ________ No ________

    If not, what alternative would you suggest and why?

    Effective Date and Transition

  6. The provisions in the proposed Statement would be effective for fiscal quarters beginning after issuance of a final Statement. Neither early application nor retroactive application would be permitted. Pro forma information would be disclosed in the period of adoption and thereafter until all periods reflect goodwill accounted for in accordance with the proposed Statement.

    Are those effective date and transition provisions appropriate?

    Yes ________ No ________

    If not, how should they be modified and why?

  7. This proposed Statement would not require that existing goodwill be tested for impairment upon adoption of the final Statement unless an indicator of impairment exists at that date. However, this proposed Statement would require that the benchmark assessment be performed for all existing reporting units with goodwill within six months of adoption.

    Should this proposed Statement require that all existing goodwill be tested for impairment upon adoption of the final Statement?

    Yes ________ No ________

    If so, what time frame should be allowed for completion of those impairment tests?

  8. Is six months adequate time to complete the "transitional" benchmark assessments on existing reporting units?

    Yes ________ No ________

    If not, why not and what time frame should be provided?

  9. Any other comments?

Eric Richard • General Counsel • (202) 508-6742 •
Mary Mitchell Dunn • SVP & Associate General Counsel • (202) 508-6736 •
Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 •
Catherine Orr • Senior Regulatory Counsel • (202) 508-6743 •