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SEC: Negative Equity Doesn't Mean No Impairment

Tammy Whitehouse | December 17, 2009

When companies are testing for possible impairment of goodwill in a seemingly troubled reporting entity, the staff of the Securities and Exchange Commission has signaled it won’t be fooled by attempts to spin negative equity into a rationalization that an impairment doesn’t exist.

Evan Sussholz, professional accounting fellow for the SEC, said at the recent national conference of the American Institute of Certified Public Accountants that the staff has heard a number of questions about which valuation approach is required by Accounting Standards Codification Topic 350 Intangibles.

The rules map out a two-step test for determining whether goodwill might be impaired, or whether it may have lost some value since it was last determined and booked. The purpose of the first step, said Sussholz, is to identify potential impairment by comparing the fair value of a...

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