FASB Simplifies Accounting for Goodwill

Published on April 20, 2017

The FASB issued new guidance that simplifies the accounting for goodwill impairment for all entities by eliminating the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of today's goodwill impairment test) to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (i.e., measure the charge based on today’s Step 1). The new standard does not change the guidance on completing Step 1 of the goodwill impairment test. An entity will still be able to perform today’s optional qualitative goodwill impairment assessment before determining whether to proceed to Step 1. In addition, private companies will still have the option to elect the Private Company Council alternative on goodwill. The standard has tiered effective dates, starting in 2020 for calendar-year PBEs that meet the definition of an SEC filer. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017.

(Source: EY AccountingLink - Financial Reporting Briefs - March 2017)