On January 26, 2017, the FASB issued guidance to simplify the accounting for goodwill impairment. The guidance removes Step 2 of the goodwill impairment test – which required a hypothetical purchase price allocation (involving the need to determine the fair value of individual assets and liabilities of a reporting unit to calculate goodwill impairment). Under the new guidance, goodwill impairment is calculated as the amount by which a reporting unit’s carrying value exceeds its fair value (not to exceed the carrying amount of goodwill). The revised guidance is more similar to IFRS, which also has a single-step goodwill impairment test.
All other goodwill impairment guidance will generally remain unchanged – including the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary.
With regard to timing associated with the revised guidance:
- SEC filers are required to adopt the new standard for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019.
- All other entities, including not-for-profits, that are adopting the guidance should do so for their annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2021.
- Early adoption is permitted for any impairment tests (interim or annual) performed after January 1, 2017.
The changes are contained in Accounting Standards Update (“ASU”) No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. Click here for a copy of the ASU.