Reporting Units
Lesson:
When testing for goodwill impairments, a firm's goodwill isn't tested at the top level.
Instead, it's tested at the reporting level. This allows for a more granular analysis.
But what is a reporting level?
A reporting unit must meet all of the following characteristics:
- It must either be an operating segment or one level below one.
- It must constitute a business activity (have inputs, substantive processes, and either actual outputs or the potential to create outputs).
- It must report discrete financial information, with its own revenue, expense and asset information.
- It must not stand apart from other components of its operating segment that have similar economic characteristics.
- The segment manager (or chief operating decision maker) must regularly review the component's operating results.
You're an accountant, trying to figure out if a portion of a business can be considered a reporting unit. Your decision could go either way, except for this one fact.
You've been briefed with the following facts:
- The section of the business is a group with its own inputs, processes, and outputs (or potential for outputs).
Is this part of the business a reporting unit?
Answer:
- It is a reporting unit.
Explanation:
-
A reporting unit must constitute a business activity (have inputs, substantive processes, and either actual outputs or the potential to create outputs).