Most recently he was located in Budapest, Hungary on a three-year international assignment and served in the company’s Houston, TX location prior to this assignment. He currently serves as an Accounting Policy Consultant with HP, Inc. Kelen has over 15 years of progressive finance and accounting experience. He also serves as an Editorial Advisor for the AICPA’s "Journal of Accountancy". Kelen has also remained involved in CPA exam content development for nearly 10 years and has authored more than a thousand multiple choice questions for various sections of the CPA exam. His courses are available for purchase from many online CPE providers including the AICPA. For other companies, goodwill impairment charges are generally less significant, but they still require analysis to investigate just what went wrong and if the mistake is likely to be repeated in the future, to the detriment of existing shareholders.Kelen is a recognized author and reviewer of CPE courses and has authored over 85 courses (225+ CPE credit hours) covering a range of accounting, auditing, financial reporting, regulatory, and ethics topics. In HP's case, the decision to purchase Autonomy without sufficient due diligence and tire kicking represented one of many instances where a serious lapse in judgment was made. Goodwill impairment charges don't hurt current year cash flows, but these charges demonstrate mistakes made in the past by management teams. In regard to HP, it funded the purchase price through cash reserves, which ended up destroying billions in shareholder value since the company is worth only a fraction of its earlier estimated value.
It represents, however, a huge past mistake that drained the corporate coffers. HP, and other firms that end up writing down significant amounts of goodwill, are quick to point out that a goodwill impairment charge is non-cash, and does not affect cash flows. If the value declines, as happened in rapid fashion with goodwill related to Autonomy, then an impairment charge is required. But since then, goodwill must be tested annually to see if its value is still accurate. Prior to 2002, goodwill was amortized over time, much the way a piece of equipment might be depreciated over a period of 10 or 20 years, depending on estimates of its useful life. Once an acquisition is made, and provided it was a sound purchase, goodwill remains on the acquiring firm's balance sheet indefinitely. To determine goodwill amounts, companies usually rely on their own accountants, but they will also turn to valuation consultants to help estimate goodwill values.įrom HP's perspective, there is little question that it had high hopes for Autonomy, which was based off its reported profit levels and the expectation that its rapid growth would continue well into the future. HP's mistake, in addition to questions over the amounts it initially decided to write down goodwill by and subsequently booked, demonstrates that the concept of goodwill is uncertain and open to interpretation. These numbers were later changed to $6.9 billion and $4.3 billion, respectively. At the time of acquisition, HP initially accounted $6.6 billion towards goodwill and $4.6 billion towards other intangibles. According to a Bloomberg study, Autonomy listed total assets of $3.5 billion right before it was acquired.
#Hp goowill writedown software
Given the charge announced in December, it is clear that most of the purchase price was over and above the book value, or net asset value of Autonomy, a fast-growing software company. In the case of HP's acquisition of Autonomy, the $11 billion purchase price consisted primarily of goodwill and related intangible assets. In other words, goodwill represents an acquisition amount over and above what the purchased firm's net assets are deemed to be valued at on the balance sheet.
Goodwill is an intangible asset, as opposed to tangible assets such as buildings, computer and office equipment, and related physical goods, including inventory and related forms of working capital. Goodwill frequently arises when one company buys another it is defined as the amount paid for the company over book value. The write-off, which was described as a non-cash charge for the impairment of the Autonomy purchase, included goodwill and intangible asset charges Back in November when it released its fourth quarter results, computer giant Hewlett-Packard announced that it would be taking an $8.8 billion charge to write down a botched acquisition of U.K.-based Autonomy Corporation plc.
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