Summary
Berkshire Hathaway Inc. filed an 8-K on October 28, 2002, to report a change in accounting policy. Effective January 1, 2002, the company adopted Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets." This new standard eliminates the amortization of goodwill, shifting the accounting model to rely solely on impairment testing. The filing includes transitional disclosures related to SFAS No. 142 for selected financial data covering the fiscal years 1997 through 2001 and the six-month periods ended June 30, 2001, and June 30, 2002. These disclosures are incorporated by reference from an attached exhibit (Exhibit 99.1), providing investors with a comparative view under the new accounting rules.
Key Highlights
- 1Adoption of SFAS No. 142: Berkshire Hathaway implemented new accounting standards for goodwill and other intangible assets starting January 1, 2002.
- 2Elimination of Goodwill Amortization: The core change under SFAS No. 142 is the discontinuation of regular amortization for goodwill.
- 3Focus on Impairment Testing: Goodwill will now be accounted for based exclusively on periodic impairment tests.
- 4Transitional Disclosures Provided: The report includes specific disclosures to aid in comparing financial data under the new and old accounting methods.
- 5Historical Financial Data Updated: Disclosures cover fiscal years 1997-2001 and the first six months of 2001 and 2002.
- 6Exhibit Incorporation: Detailed selected financial data is provided in Exhibit 99.1, which is part of this filing.
Frequently Asked Questions
The main change is Berkshire Hathaway's adoption of SFAS No. 142, which alters how goodwill and other intangible assets are accounted for. Specifically, goodwill will no longer be amortized but will be tested for impairment instead.
Eliminating goodwill amortization means that the expense related to goodwill will no longer be recognized systematically each period. This can lead to higher reported net income and earnings per share, as a significant expense is removed. However, investors should note that this is an accounting change and does not reflect a change in the underlying business operations. The value of goodwill is still subject to impairment tests.
Transitional disclosures are provided to help investors understand the impact of the new accounting standard on past financial results. They allow for a more direct comparison of financial performance by presenting historical data under the new rules, even though the new rules were not in effect for those prior periods.
The detailed selected financial data for the fiscal years ended December 31, 2001, 2000, 1999, 1998, and 1997, as well as for the six-month periods ended June 30, 2002, and June 30, 2001, is provided in Exhibit 99.1, which is incorporated by reference into this 8-K filing.