Assume that Sun, Inc. had identified a potential write-down of at least $1.8 billion related to a reporting unit.
a. What is a reporting unit? How does Sun determine what constitutes a reporting unit for the purpose of determining a goodwill impairment?
b. Explain how the market value of the firm as a whole influences the need to recognize an impairment of goodwill.
c. Assume that the reporting unit was the storage solutions unit.
While the past year's results have been poor, management maintains that it has developed significant new products that repositions the company to take a leadership role in storage solutions and that it expects significant improvement in results starting in the following year. Outline the major elements of an audit program to determine whether there is a goodwill impairment, and if there is, the extent of the goodwill impairment.