FASB Issues ASU 2010-28, When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts
Under the guidance in the new Accounting Standards Update, an entity must consider whether it is more likely than not that goodwill impairment exists for a reporting unit with a zero or negative carrying amount. If it is more likely than not that goodwill impairment exists, the second step of the goodwill impairment test must be performed to measure the amount of goodwill impairment loss, if any. To make this determination, an entity should consider whether there are adverse qualitative factors that could impact the amount of goodwill. These factors could include (but are not limited to) an adverse business climate, unexpected competition, and loss of key personnel.
As a result of the new guidance, an entity can no longer assert that a reporting unit is not required to perform the second step of the goodwill impairment test solely because the carrying amount of the reporting unit is zero or negative.