Project Update

Accounting for Goodwill Impairment

Last updated on October 17, 2016. Please refer to the Current Technical Plan for information about the expected release dates of exposure documents and final standards.

(Updated sections are indicated with an asterisk *)


The staff has prepared this summary of Board decisions for information purposes only. Those Board decisions are tentative and do not change current accounting. Official positions of the FASB are determined only after extensive due process and deliberations.

Project Objective
Due Process Documents
*Decisions Reached at Last Meeting
*Tentative Board Decisions Reached to Date
*Next Steps
*Board/Other Public Meeting Dates
Background Information
Contact Information

Project Objective

The objective of this project is to reduce the cost and complexity of the subsequent accounting for goodwill by simplifying the impairment test. The Board is considering whether to make additional changes to the subsequent accounting for goodwill in a related project, Subsequent Accounting for Goodwill for Public Business Entities and Not-for-Profit Entities.

Due Process Documents

On May 12, 2016, the Board issued an Exposure Draft of the proposed Accounting Standards Update, Intangibles—Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment. The comment deadline ended on July 11, 2016.

*Decisions Reached at Last Meeting (October 10, 2016)

The Board discussed comments received on its May 2016 proposed Accounting Standards Update, Intangibles—Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment. The Board specifically discussed the impairment test, reporting units with zero or negative carrying amounts, fair value guidance, and transition and effective date. The Board made the following decisions.

Impairment Test

The Board affirmed its decision in the proposed Update to remove Step 2 of the current impairment test rather than allowing Step 2 as an option.

The Board also decided to:
  1. Include guidance on the deferred tax effects of tax deductible goodwill on the impairment charge
  2. Supersede paragraphs 350-20-35-18 through 35-19 that provide guidance on circumstances in which the impairment test is not complete at the reporting date
  3. Clarify that an entity should not allocate foreign currency translation adjustments from accumulated other comprehensive income to a reporting unit.
The Board considered, but decided not to:
  1. Prescribe a valuation premise used to determine the fair value of a reporting unit
  2. Require additional disclosures about an entity’s use of the qualitative assessment for any given reporting unit.
Reporting Units with Zero or Negative Carrying Amounts

The Board affirmed its decision in the proposed Update to apply the same one-step impairment test to all reporting units, including those with zero or negative carrying amounts. An entity would be required to disclose the amount of goodwill allocated to reporting units with zero or negative carrying amounts. The Board considered but decided not to require additional disclosures about reporting units with zero or negative carrying amounts.

Fair Value Guidance

The Board decided to retain the fair value guidance on assuming a taxable versus nontaxable transaction in Topic 350, as modified in the proposed Update to reflect the change to a one-step impairment test.

Transition and Effective Date

The Board decided to align the effective date for decisions reached in this project with the requirements in Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This would result in an effective date of years beginning after December 15, 2019, for public business entities that are SEC filers, and December 15, 2020, for entities that are not SEC filers. Early adoption would be allowed for all entities as of January 1, 2017. The Board also affirmed prospective application as proposed.

The Board decided to provide specific transition guidance for private companies that have elected the private company alternative on the subsequent accounting for goodwill but that have not adopted the private company alternative to subsume certain intangible assets into goodwill. The Board decided to allow these private companies the opportunity to change their accounting to the guidance in the forthcoming final Update without having to justify that the new guidance is preferable under Topic 250, Accounting Changes and Error Corrections.

*Tentative Board Decisions Reached to Date (As of October 10, 2016)

October 10, 2016

See Decisions Reached at Last Meeting.

June 20, 2016

The FASB and the IASB discussed the status of their respective projects on (1) accounting for goodwill impairment, (2) subsequent accounting for goodwill, and (3) accounting for identifiable intangible assets in a business combination. No decisions were made.

October 28, 2015

The Board decided to proceed with the project under a phased approach. The first phase is to simplify the impairment test. In the second phase of the project (see Subsequent Accounting for Goodwill for Public Business Entities and Not-for-Profit Entities on the technical agenda), the Board plans to work concurrently with the IASB to address any additional concerns.

Subsequent Measurement

The Board decided to simplify the impairment test by removing the requirement to perform a hypothetical purchase price allocation when the carrying value of a reporting unit exceeds its fair value (step 2 of the impairment model in current GAAP). The Board considered but decided not to allow entities an option to perform step 2.

The Board decided that entities should apply the same impairment model for a reporting unit with a zero or negative carrying amount as the model for a reporting unit with a positive carrying amount by comparing the fair value of the reporting unit to its carrying amount. This reverses the Board’s previous decision to require the write-off of goodwill allocated to reporting units with zero or negative carrying amounts.

Presentation

The Board decided not to make any changes to the presentation requirements in current GAAP.

Disclosures

The Board decided that in addition to the current disclosure requirements, entities with reporting units with zero or negative carrying amounts should disclose the following:
  1. Identification of reporting units with zero or negative carrying amounts
  2. The amount of goodwill attributable to each reporting unit with a zero or negative carrying amount.
Transition

The Board decided that entities would be required to adopt the simplified impairment test prospectively.

Transition Disclosures

The Board decided that entities should provide the applicable disclosures described in paragraphs 250-10-50-1(a), which are the nature of and reason for the change in accounting principle, and 250-10-50-2, which states that the required transition disclosures should be included in both interim and annual financial statements in the period of the change.

November 25, 2013

The Board held a decision-making meeting and added a project to its agenda on the accounting for goodwill for public business entities and not-for-profit entities.

*Next Steps

The Board directed the staff to draft a preballot draft of an Accounting Standards Update for Board and external review and to return at a future Board meeting to address any issues arising from that review, the cost-benefit analysis, and permission to proceed with a draft for vote by written ballot.

*Board/Other Public Meeting Dates

The Board meeting minutes are provided for the information and convenience of constituents who want to follow the Board’s deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions become final only after a formal written ballot to issue a final standard.

The following are links to the minutes for each meeting.

*October 10, 2016    Board Meeting—Discussed comments received on its May 2016 proposed Accounting Standards Update, Intangibles—Goodwill and Other (Topic 350):  Simplifying the Accounting for Goodwill Impairment.  The Board specifically discussed the impairment test, reporting units with zero or negative carrying amounts, fair value guidance, and transition and effective date.
June 20,2016 Joint Board Meeting—Discussed the FASB and IASB projects on goodwill and intangible assets.
January 6, 2016 Board Meeting—Discussed the impairment test for reporting units with zero or negative carrying amounts and the disclosure requirements for all entities.
October 28, 2015 Board Meeting—Discussed whether and how to change the subsequent measurement of goodwill.
September 23, 2015 Joint Board Meeting—Discussed the Business Combinations projects of the FASB and IASB
April 7, 2015 Board Meeting—Updated the Board on additional research and outreach performed.
November 5, 2014 Board Meeting—Updated the Board on research and outreach performed.
March 26, 2014 Board Meeting—Further discussed potential models for subsequent measurement of goodwill for public business entities and not-for-profit entities.
February 12, 2014 Board Meeting—Discussed potential models for subsequent measurement of goodwill for public business entities and not-for-profit entities.
November 25, 2013 Board Meeting—Added project to Board agenda.

Background Information

In 2001, FASB Statement No. 142, Goodwill and Other Intangible Assets replaced APB Opinion No. 17, Intangible Assets (issued in 1970). Opinion 17 required amortization of goodwill over its useful life, not to exceed 40 years. Statement 142 eliminated goodwill amortization for financial reporting purposes and instead required that goodwill be tested for impairment at least annually using a two-step process. In the first step, a reporting entity compares the fair value of its reporting units with their carrying value, including goodwill. If the carrying amount of a reporting unit is greater than its fair value, a reporting entity must calculate the implied fair value of goodwill by performing a hypothetical application of the acquisition method as of the date of the impairment test. The goodwill impairment, if any, is equal to the excess of the carrying amount of goodwill over its implied fair value.

In 2011, due to concerns about the cost and complexity of the annual goodwill impairment test, the Board developed an optional qualitative impairment test as a screen for companies to assess whether it is more likely than not that goodwill is impaired before performing the quantitative two-step impairment test (FASB Accounting Standards Update No. 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment).

In November 2013, the Board endorsed the Private Company Council (PCC) decision to give private companies an alternative to amortize goodwill and simplify the impairment test. For further information on the alternative, see the Summary of Board Decisions . As a result of feedback that indicates that many public business entities and not-for-profits (NFPs) share similar concerns related to the cost and complexity of the annual goodwill impairment test, the Board added this project to its agenda.

Contact Information

Adriana Yepes
Project Manager
ayepes@fasb.org

Halie Creps
Practice Fellow
cmcreps@fasb.org

Tanner Engmann
Postgraduate Technical Assistant
tengmann@fasb.org