Sony’s Goodwill and Segment Reporting, Article Review Example

Summary of the Memorandum

The memorandum is regarding Sony’s goodwill and segment reporting. The memorandum notes that Sony expanded to include two industries within the US: electronics and entertainment. However, it is also noted that while music was profitable, motion pictures were not profitable. Thus, the acquisition of Sony Pictures was detrimental to the profitability of the company, accounting for a loss of nearly $450 million. Overall, the company notes that it associated $27.7 billion in goodwill. With the combination of both Sony Music and Sony Pictures, Sony Entertainment had little profit and the financial statements noted nothing of the shortfalls of Sony Pictures.

Provided with this information, the memorandum addresses the need for a write-down of goodwill and its subsequent impairment as allowed under FASB ASC. The memorandum also addresses the need for the disclosure on the financial statements of the differing trends in order to prevent misleading interested parties. According to the memorandum, it is believed that a write-down is necessary. It further believes that the company is misleading interested parties due to the differing financial trends. Thus, it is recommended that the disclosure statements are revised to reflect this trend.

The company used several different authorities to come to the recommended actions regarding goodwill. For instance, the company noted that ASC 805-30-30-1 (otherwise known as IFRS 3.B12) shows that goodwill is an intangible asset. The company further noted that ASC 305-20-35-1 and 28 (otherwise known as IAS 36.10) shows that impairment of intangible assets requires annual testing. This requirement also shows that disclosure is necessary for these segments (music and entertainment). The company notes that ASC 350-20-35-4 (otherwise known as IAS 36.105) shows that this measurement is conducted by comparing the fair value against the reported value of the goodwill. Thus, ASC 350-20-50-1 and 2 (otherwise known as IAS 36.129) shows that impairment is shown in the income statement and losses must be disclosed.

The company used other authorities to come to the recommended actions regarding segment disclosure. For example, the company noted that ASC 280-10-50-10 (otherwise known as IFRS 8.2) shows that segment disclosure is required within the financial statements. Furthermore, ASC 280-10-50-6, 1, and 12 (otherwise known as IFRS 8.1, 5, and 13) show that segment disclosure provides information regarding the different activities and economic environments, including information regarding revenue and expenses, and that recognition is required, provided that revenue is 10 percent or more of combined revenue or assets.

With information from the authoritative regulations regarding goodwill, impairment, and segment disclosures, the company determined that Sony Pictures’ goodwill exceeded fair value. Therefore, the projected loss could be estimated and disclosed. The company also noted that the segment disclosure must be completed, provided the 10 percent requirement was met. Furthermore, the company showed that the individual companies of Sony Music and Sony Pictures could not be combined because of differing economic environmental conditions. Thus, each individual company must be reported independently on the financial statements.

Authoritative Sources

The memorandum cited multiple authoritative sources. These came from GAAP and IFRS. For instance, the company utilized ASC 805, 305, 350, and 280 for sources regarding goodwill, impairment, and segment disclosure. Therefore, the company provided ample evidence regarding the proposed actions to be undertaken. With this evidence, the company was able to successfully argue the reasoning behind the proposed action and why it was appropriate.

SEC ‘Plain English’ Concepts

The purpose of the SEC’s ‘plain English’ concepts is to provide adequate communication between the company filing the report and interested parties. Therefore, it is less likely that interested parties will remain confused about different aspects of the report. This memorandum provides this information clearly. In other words, the memorandum explains the GAAP and IFRS guidelines in lingo that laypeople can understand.