Year-End: Three Key Reporting Issues.

• Author: Heffes, Ellen M.
• Position: Domestic - Brief Article

Looking ahead to calendar year-end 2001, Financial Executive asked Paul Munter to highlight the key financial reporting issues that should be "top of mind." Munter is a CPA, the KPMG professor of accounting and chairman of the department of accounting at the University of Miami, and a frequent contributor to FE.

Munter says while there is always an array of issues that come to the forefront when dealing with year-end matters, there are three broad areas that those involved in the financial reporting process need to be attuned to. One involves the business combinations issue -- due to the totally new standards coming into play. The other two relate more to disclosure that is being sought by investors about segments, and about credit and market risk elements.

1. The New Standards on Business Combinations and Intangibles: Those who have dealt with this know that goodwill that was previously reported has been subject to amortization and also to an impairment test. Starting Jan. 1, 2002, calendar-year companies can no longer amortize goodwill, but must subject it to an impairment test on an annual basis. Several issues and questions arise from that, Munter says, including a transition issue, in the determination of whether the existing goodwill is impaired or not, and to be prepared to explain why it's impaired. If it's deemed to be impaired at Jan.1, 2002, that would take it to a below-the-line charge, as opposed to Dec. 31, which would require an above-the-line charge. This is crucial in light of the deteriorating economic circumstances during the third and fourth quarter of calendar 2001. Stated differently, the question that will arise is: "Why was the goodwill impaired on Jan. 1 as a below-the-line charge when it wasn't impaired on Dec. 31 as an above-the-line c harge?"

2. Segment Reporting: A second issue involves the reporting unit concept of FAS 142 for goodwill impairment...