FASB issued an
exposure draft
of a proposed Accounting Standards
Update intended to simplify how businesses are required to test
goodwill for impairment.
“Nonpublic companies have expressed concerns to the Board
about the cost and complexity of performing the goodwill impairment
test,” FASB member Daryl Buck said in a press release. “The
proposals contained in this Update are intended to address those
concerns and to simplify and improve the process for public and
nonpublic entities alike.”
The amendments would allow an entity to first assess
qualitative factors, what FASB describes in a
primer
on the proposal as events and
circumstances, to determine whether it is necessary to perform the
two-step quantitative goodwill impairment test.
Current guidance requires an entity 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 must be performed to measure the amount of impairment loss, if any.
Under the proposed amendments, an entity would not be required to calculate the fair value of a reporting unit unless it determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The proposals include a number of factors to consider in conducting the qualitative assessment.
The
proposal would allow an entity to opt to bypass the qualitative
assessment for any reporting unit in any period and proceed directly
to performing the first step of the two-step test.
If approved, the changes would be effective for annual and
interim goodwill impairment tests performed for fiscal years
beginning after Dec. 15, 2011, and early adoption would be permitted.
FASB is looking for feedback on:
- Whether constituents think the proposed amendments will reduce overall costs and complexity compared with existing guidance;
- Whether constituents think the qualitative approach for testing goodwill would delay the recognition of goodwill impairment losses or affect how users evaluate goodwill reported in the financial statements;
- Whether constituents think the guidance in the proposed amendments about how an entity should assess relevant events or circumstances is clear;
- Whether constituents agree with the Board’s decision to make the proposed amendments applicable to both public entities and nonpublic entities, and if they agree with the proposed effective date.
The comment deadline for the proposal is June 6. For this proposed update, FASB is piloting a new electronic constituent feedback form intended to make it easier to submit comments. Constituents can also provide comments via the traditional process. A podcast on the proposal is also available on FASB’s website.
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