FASB Approves Standard to Simplify Testing Goodwill for Impairment

FASB Approves Standard to Simplify Testing Goodwill for Impairment 

The Financial Accounting Standards Board (FASB) approved a revised accounting standard intended to simplify how an entity tests goodwill for impairment.

Per the FASB:

“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.