FASB Updates ‘Testing Goodwill for Impairment’
The Financial Accounting Standards Board (FASB) has issued Accounting Standards Update No. 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment, which simplifies how an entity tests goodwill for impairment.
As announced in August, the update includes amendments that are intended to address concerns expressed by private companies about the cost and complexity of the goodwill impairment test.
With these amendments, both public and nonpublic entities have the choice to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test.
Under that option, an entity no longer would be required to calculate the fair value of a reporting unit unless the entity determines, based on that qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount.
The FASB update also includes examples of the types of events and circumstances to consider in conducting the qualitative assessment.
The amendments will be effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, but early adoption is permitted by FASB.