Goldman Sachs 2013 Annual Report Download - page 42

Management’s Discussion and Analysis
Goodwill. Goodwill is the cost of acquired companies in
excess of the fair value of net assets, including identifiable
intangible assets, at the acquisition date. Goodwill is
assessed annually in the fourth quarter for impairment, or
more frequently if events occur or circumstances change
that indicate an impairment may exist, by first assessing
qualitative factors to determine whether it is more likely
than not that the fair value of a reporting unit is less than its
carrying amount. If the results of the qualitative assessment
are not conclusive, a quantitative goodwill test would be
performed by comparing the estimated fair value of each
reporting unit with its estimated net book value.
During the fourth quarter of 2013, we assessed goodwill for
impairment. The qualitative assessment required
management to make judgments and to evaluate several
factors, which included, but were not limited to,
macroeconomic conditions, industry and market
considerations, cost factors, overall financial performance,
entity-specific events, events affecting reporting units and
sustained changes in our stock price. Based on our
evaluation of these factors, we determined that it was more
likely than not that the fair value of each of the reporting
units exceeded its respective carrying amount, and
therefore, we determined that goodwill was not impaired
and that a quantitative goodwill impairment test was
not required.
If we experience a prolonged period of weakness in the
business environment or financial markets, our goodwill
could be impaired in the future. In addition, significant
changes to critical inputs of the goodwill impairment test
(e.g., cost of equity) could cause the estimated fair value of
our reporting units to decline, which could result in an
impairment of goodwill in the future.
See Note 13 to the consolidated financial statements for
further information about our goodwill.
Identifiable Intangible Assets. We amortize our
identifiable intangible assets over their estimated lives or
based on economic usage for certain commodities-related
intangibles. Identifiable intangible assets are tested for
impairment whenever events or changes in circumstances
suggest that an asset’s or asset group’s carrying value may
not be fully recoverable. See Note 13 to the consolidated
financial statements for the carrying value and estimated
remaining lives of our identifiable intangible assets by
major asset class.
A prolonged period of market weakness or significant
changes in regulation could adversely impact our businesses
and impair the value of our identifiable intangible assets. In
addition, certain events could indicate a potential
impairment of our identifiable intangible assets, including
weaker business performance resulting in a decrease in our
customer base and decreases in revenues from
commodities-related customer contracts and relationships.
Management judgment is required to evaluate whether
indications of potential impairment have occurred, and to
test intangibles for impairment if required.
An impairment loss, generally calculated as the difference
between the estimated fair value and the carrying value of
an asset or asset group, is recognized if the total of the
estimated undiscounted cash flows relating to the asset or
asset group is less than the corresponding carrying value.
See Note 12 to the consolidated financial statements for
impairments of our identifiable intangible assets.
Recent Accounting Developments
See Note 3 to the consolidated financial statements for
information about Recent Accounting Developments.
40 Goldman Sachs 2013 Annual Report