Business acumen is keenness and quickness in understanding and dealing with a business situation in a manner that is likely to lead to a good outcome. For CPAs in public accounting this means performing higher quality audits. But who has the time to compile a list of relevant and timely accounting news relevant to CPAs? We do! This week’s GAAP Flash includes articles about goodwill impairment under ASC 305, business combinations under ASC 805 and other accounting news provided to help increase business acumen in the profession.

The Big Number (November 24, 2015) – The Wall Street Journal (@wsj)

The total value of goodwill impairments, or write-downs, recorded by U.S. public companies was $25.7 billion according to a study of more than 8,700 firms from corporate financial adviser Duff & Phelps. “The trend is moving toward bigger impairments,” said Greg Franceschi, managing director at Duff & Phelps.

How It’s Relevant: The torrent of deals announced this year means write-downs of goodwill and other intangible assets could continue to increase in the years to come. Furthermore, the increase in interest rates could further decrease the fair value of the reporting unit, the unit of measure for goodwill impairment under ASC 350, as a resulted of the discounting that is required in fair value measurements. Are you facing a year-end goodwill impairment test (or responsible for auditing your client’s test)? If so, it might be wise to “brush up” on the nuances of the accounting found within ASC 350!

Oil & Gas Sees Steep Rise in Goodwill Impairments (November 18, 2015) – CFO.com (@cfo)

According to its 2015 U.S. Goodwill Impairment Study, Duff & Phelps noted that the number of goodwill impairment events increased by 24% to 341 in 2014. Greg Franceschi, Duff & Phelps managing director and co-chairman of the AICPA Impairment Task Force, said, “The increased 2014 aggregate impairment amount was consistent with macroeconomic trends. While the U.S. economy continued to improve in 2014, plunging commodity prices in the latter half of the year affected certain industries disproportionately.”

How It’s Relevant: Among the industries most affected by the decrease in commodity prices was the energy sector, with the amount of goodwill impairment nearly tripling in 2014 to $5.8 billion. And it is not getting any better for 2015, with the sector’s continued exposure to lower oil and commodity prices. Couple that with the decrease in the economies of the BRICS (Brazil, Russia, India, China and South Africa), nations very dependent on commodity prices, and you get a double-whammy! If your company or audit client is exposed to commodity prices or the BRICS, chances are this year’s goodwill impairment test under ASC 350 will be heavily scrutinized!

M&A Bankers Toast a Bumper Year Discreetly (December 17, 2015) – Reuters (@Reuters)

Banks are celebrating the biggest year on record for mergers and acquisitions with champagne and lavish dinners. However, M&A bankers are keeping it on the “down low” hosting it at private residences so as not to upset their colleagues in other departments, such as trading, who did not do so well.

How It’s Relevant: According to Bloomberg Business, 2015 was record-breaking year for acquisitions, surpassing the previous record set in 2007. Furthermore, the expectation is that 2016 M&A activity will remain at elevated levels. Where were you in 2007? Well, if you are an auditor on a public company audit engagement, you might have been in high school! Accounting for business combinations under ASC 805 can be tricky. Things like accounting for contingent consideration, measurement period adjustments, and allocating the purchase price to the acquired intangible assets based on their fair values are all areas that require professional judgment by management and that auditors need to consider when auditing business combinations.

U.S. Corporations Increasingly Adjust to Mind the GAAP (December 14, 2015) – The Wall Street Journal (@wsj)

About one in 10 major securities filings this year used the term adjusted EBIDTA (or adjusted earnings before, interest, taxes, depreciation, and amortization), up from about one in 40 a decade ago. These adjusted measures, which also include figures such as adjusted net income and adjusted sales, are considered non-GAAP financial measures and tend to paint a rosier picture of corporate earnings.

How It’s Relevant: According to Greg Hayes, CEO of United Technologies, by adhering to accounting rules under U.S. GAAP, “we’re actually confusing people more than we were helping people understand what’s going on in the business.” Companies can disclose non-GAAP financial measures provided they follow certain requirements such as not placing undue prominence on the non-GAAP measure. “Non-GAAP measures are used extensively and in some instances may be a source of confusion,” said Mary Jo White, chairman of the SEC. “This area deserves close attention.” If the SEC is going to look at it, you might want to ensure you know the disclosure requirements and are following them!