FASB on Thursday issued Accounting Standards Update (ASU) no. 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment, that the board said simplifies how public and nonpublic entities test goodwill for impairment.
The amendments permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in FASB Accounting Standards Codification Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50%.
FASB approved the amendments contained in the ASU in August (see previous JofA coverage, “FASB Standard Simplifies Testing Goodwill for Impairment”).
FASB said the amendments address private companies’ concerns about the cost and complexity of the goodwill impairment test.
The guidance also includes examples of the types of events and circumstances to consider in conducting the qualitative assessment. (More information is available in the Aug. 12, 2011, edition of FASB in Focus .)
The amendments will be effective for annual and interim goodwill impairment tests performed for fiscal years beginning after Dec. 15, 2011. Early adoption is permitted.
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