FASB Standard Simplifies Testing Goodwill for Impairment

August 10, 2011

FASB on Wednesday approved a revised accounting standard that the board said simplifies how an entity tests goodwill for impairment.

 

The amendments will allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. An entity no longer will be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The guidance also includes examples of the types of factors to consider in conducting the qualitative assessment.

 

Under current practice, entities are required to test goodwill for impairment, at least annually, by first comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit is less than its carrying amount, then the second step of the test is to be performed to measure the amount of impairment loss, if any.

 

FASB issued an exposure draft, Intangibles—Goodwill and Other (Topic 350)—Testing Goodwill for Impairment, in April with its proposal for revising the testing of goodwill for impairment. FASB said in a press release that it expects to issue a final Accounting Standards Update in September.

 

“The board’s decision today comes as a direct result of what we heard from private companies, which had expressed concerns about the cost and complexity of performing the goodwill impairment test,” FASB member Daryl Buck said in the press release. “The amendments approved by the board address those concerns and will simplify the process for public and nonpublic entities alike.”

 

The amendments will be effective for annual and interim goodwill impairment tests performed for fiscal years beginning after Dec. 15, 2011. Early adoption will be permitted.

 

More from the JofA:

 

 Find us on Facebook  |   Follow us on Twitter  |   View JofA videos

PROFESSIONAL DEVELOPMENT: EARLY CAREER

Making manager: The key to accelerating your career

Being promoted to manager is a key development in a young public accountant’s career. Here’s what CPAs need to learn to land that promotion.

PROFESSIONAL DEVELOPMENT: MIDDLE CAREER

Motivation and preparation can pave the path to CFO

CPAs in business and industry face intense competition to land a coveted CFO job. Learn how to best prepare yourself for the role.

PROFESSIONAL DEVELOPMENT: LATE CAREER

Second act: Consulting

CPAs are using experience to carve out late-career niches. Learn how to successfully make a late-career transition to consulting, from CPAs who have done it.