FASB Issues Goodwill Impairment Testing Standard

The Financial Accounting Standards Board has finalized a new standard aimed at simplifying how organizations test goodwill for impairment.

The new standard, known as Accounting Standards Update No. 2011-08, “Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment,” includes amendments intended to address concerns expressed by private companies about the cost and complexity of the goodwill impairment test. The amendments allow both public and nonpublic entities the option 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 guidance 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 Dec. 15, 2011, although early adoption is also permitted.

For more information, see the Aug. 12, 2011 edition of FASB in Focus.