FASB Approves Standard to Simplify Testing Goodwill for Impairment

Thursday, August 11, 2011 Print Email
The Financial Accounting Standards Board (FASB) today approved a revised accounting standard intended to simplify how an entity tests goodwill for impairment.

“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,” states FASB member Daryl Buck. “The amendments approved by the Board address those concerns and will simplify the process for public and nonpublic entities alike.”

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.

Prior to today’s decision, entities were required to test goodwill for impairment, on at least an annual basis, 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.

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

The FASB issued its initial proposal for revising the testing of goodwill for impairment in an Exposure Draft in April 2011. The FASB expects to issue a final Accounting Standards Update in September 2011
Source: FASB

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