Alcoa 2013 Annual Report Download - page 114

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 (greater 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 were 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 Goodwill and Other
Intangible Assets policy in Note A above). The adoption of these changes had no impact on the Consolidated Financial
Statements.
Other—On January 1, 2013, Alcoa adopted changes issued by the FASB to the disclosure of offsetting assets and
liabilities. These changes require an entity to disclose both gross information and net information about both
instruments and transactions eligible for offset in the statement of financial position and instruments and transactions
subject to an agreement similar to a master netting arrangement. The enhanced disclosures will enable users of an
entity’s financial statements to understand and evaluate the effect or potential effect of master netting arrangements on
an entity’s financial position, including the effect or potential effect of rights of setoff associated with certain financial
instruments and derivative instruments. Other than the additional disclosure requirements (see Note X), the adoption of
these changes had no impact on the Consolidated Financial Statements.
On July 17, 2013, the FASB issued and Alcoa adopted changes related to hedge accounting. These changes permit an
entity to use the Fed Funds Effective Swap Rate as a U.S. benchmark interest rate for hedge accounting purposes.
Previously only interest rates on direct Treasury obligations of the U.S. government and the London Interbank Offered
Rate swap rate were considered benchmark interest rates. The benchmark interest rate is used to assess the interest rate
risk associated with a hedged item’s fair value or a hedged transaction’s cash flows. Also, the changes remove the
restriction on using different benchmark rates for similar hedges. These changes are effective prospectively for
qualifying new or redesignated hedging relationships entered into on or after July 17, 2013. The adoption of these
changes had no impact on the Consolidated Financial Statements.
On January 1, 2012, Alcoa adopted changes issued by the FASB to conform existing guidance regarding fair value
measurement and disclosure between GAAP and International Financial Reporting Standards. These changes both
clarify the FASB’s intent about the application of existing fair value measurement and disclosure requirements and
amend certain principles or requirements for measuring fair value or for disclosing information about fair value
measurements. The clarifying changes relate to the application of the highest and best use and valuation premise
concepts, measuring the fair value of an instrument classified in a reporting entity’s shareholders’ equity, and
disclosure of quantitative information about unobservable inputs used for Level 3 fair value measurements. The
amendments relate to measuring the fair value of financial instruments that are managed within a portfolio; application
of premiums and discounts in a fair value measurement; and additional disclosures concerning the valuation processes
used and sensitivity of the fair value measurement to changes in unobservable inputs for those items categorized as
Level 3, a reporting entity’s use of a nonfinancial asset in a way that differs from the asset’s highest and best use, and
the categorization by level in the fair value hierarchy for items required to be measured at fair value for disclosure
purposes only. Other than the additional disclosure requirements (see Note X), the adoption of these changes had no
impact on the Consolidated Financial Statements.
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