Regulatory Compliance :
FAS Value Measurements
ASC 825 and ASC 820 require annual or allow ongoing fair value reporting of balance sheet holdings, including core deposits, CD’s, and loans. Because these values become part of your institution’s permanent reporting record, and can have earnings and capital effects, they must be both accurate and produced according to FAS approved methodologies.
ASC 805 mandates that the core deposit intangible (CDI) associated with any acquired core deposits be quantified for acquisition accounting compliance. CD and loan premium estimates are also typically required, plus other economic value information, to arrive at a transaction goodwill value. CDI values are amortized over the economic life of the acquired deposits while goodwill is set up as a perpetual component of the balance sheet, subject to annual testing. All items underlying goodwill need to be precisely valued to accurately define goodwill and avoid the potential earnings and capital exposure impairment could bring.
ASC 350 mandates that existing goodwill and certain other intangibles be tested for impairment annually. Best practice goodwill impairment tests assess multiple value metrics, including market capitalization, comparable transaction deal value to equity ratios, and indicators of underlying present values. CDI value is tested by updating the existing valuation with new value related data. Testing clearly needs to be accurate in all market environments to avoid potential exposures.