Alcoa 2012 Annual Report Download - page 106

give it a controlling financial interest in a variable interest entity; to require ongoing reassessments of whether an
enterprise is the primary beneficiary of a variable interest entity; to eliminate the solely quantitative approach
previously required for determining the primary beneficiary of a variable interest entity; to add an additional
reconsideration event for determining whether an entity is a variable interest entity when any changes in facts and
circumstances occur such that holders of the equity investment at risk, as a group, lose the power from voting rights or
similar rights of those investments to direct the activities of the entity that most significantly impact the entity’s
economic performance; and to require enhanced disclosures that will provide users of financial statements with more
transparent information about an enterprise’s involvement in a variable interest entity. The adoption of these changes
had no impact on the Consolidated Financial Statements.
Effective January 1, 2010, Alcoa adopted changes issued by the FASB on January 6, 2010 for a scope clarification to the
FASB’s previously-issued guidance (in December 2007) on accounting for noncontrolling interests in consolidated
financial statements. These changes clarify the accounting and reporting guidance for noncontrolling interests and changes
in ownership interests of a consolidated subsidiary. An entity is required to deconsolidate a subsidiary when the entity
ceases to have a controlling financial interest in the subsidiary. Upon deconsolidation of a subsidiary, an entity recognizes
a gain or loss on the transaction and measures any retained investment in the subsidiary at fair value. The gain or loss
includes any gain or loss associated with the difference between the fair value of the retained investment in the subsidiary
and its carrying amount at the date the subsidiary is deconsolidated. In contrast, an entity is required to account for a
decrease in its ownership interest of a subsidiary that does not result in a change of control of the subsidiary as an equity
transaction. The adoption of these changes had no impact on the Consolidated Financial Statements.
Goodwill and Other Intangible Assets—On January 1, 2011, Alcoa adopted changes issued by the FASB to the
testing of goodwill for impairment. These changes require an entity to perform all steps in the test for a reporting unit
whose carrying value is zero or negative if it is more likely than not (more than 50%) that a goodwill impairment exists
based on qualitative factors. This will result in the elimination of an entity’s ability to assert that such a reporting unit’s
goodwill is not impaired and additional testing is not necessary despite the existence of qualitative factors that indicate
otherwise. Based on the then most recent impairment review of Alcoa’s goodwill (2011 fourth quarter), the adoption of
these changes had no impact on the Consolidated Financial Statements.
In September 2011, the FASB issued changes to the testing of goodwill for impairment. These changes provide an entity
the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a
determination that it is more likely than not (more than 50%) that the fair value of a reporting unit is less than its carrying
amount. Such qualitative factors may include the following: macroeconomic conditions; industry and market
considerations; cost factors; overall financial performance; and other relevant entity-specific events. If an entity elects to
perform a qualitative assessment and determines that an impairment is more likely than not, the entity is then required to
perform the existing two-step quantitative impairment test, otherwise no further analysis is required. An entity also may
elect not to perform the qualitative assessment and, instead, proceed directly to the two-step quantitative impairment test.
Under either option, the ultimate outcome of the goodwill impairment test should be the same. These changes are required
to become effective for Alcoa for any goodwill impairment test performed on January 1, 2012 or later; however, early
adoption is permitted. Alcoa elected to early adopt these changes in conjunction with management’s annual review of
goodwill in the fourth quarter of 2011 (see the Goodwill and Other Intangible Assets section of Note A above). The
adoption of these changes had no impact on the Consolidated Financial Statements.
Other—On January 1, 2012, Alcoa adopted changes issued by the FASB to the presentation of comprehensive
income. These changes give an entity the option to present the total of comprehensive income, the components of net
income, and the components of other comprehensive income either in a single continuous statement of comprehensive
income or in two separate but consecutive statements; the option to present components of other comprehensive
income as part of the statement of changes in stockholders’ equity was eliminated. The items that must be reported in
other comprehensive income or when an item of other comprehensive income must be reclassified to net income were
not changed. Additionally, no changes were made to the calculation and presentation of earnings per share.
Management elected to present the two-statement option. Other than the change in presentation, the adoption of these
changes had no impact on the Consolidated Financial Statements.
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