For the Investor:
By Gary Buesser, FASB Member

Goodwill: An Investor Perspective

Accounting for goodwill as part of a business combination has long been an important and complex topic for the FASB. Current GAAP requires the acquiror to fair value the assets and liabilities of the acquired company.  Goodwill is the difference between the acquisition purchase price minus the net identifiable assets/liabilities of the acquired company.

Goodwill is also becoming a bigger component of U.S. company balance sheets.  By one estimate from CFA Institute, goodwill on U.S. companies’ balance sheets was $5.6 trillion in 2018, or 6% of assets ($95.4 trillion) and 32% of equity ($17.6 trillion).   Approximately 90% of all S&P 500 companies have goodwill balances.

Goodwill has been the subject of intense debate for decades. The central question is whether goodwill as an asset has an indefinite lifespan subject to periodic impairment tests, or a finite lifespan that companies should amortize just like property, plant, and equipment.  Consequently, no fewer than three U.S. GAAP goodwill models have emerged over time:
  • The current goodwill impairment model
  • The amortization model, which is an amortization plus impairment model because assets under U.S. GAAP accounting are subject to impairment, and
  • The immediate writeoff of goodwill model.
The FASB reopened the goodwill debate last summer when we issued an Invitation to Comment (ITC), Identifiable Intangible Assets and Subsequent Accounting for Goodwill. We received more than 100 comment letters on the ITC, and in November 2019, held two roundtables to hear stakeholder feedback.

Such extensive outreach at such an early stage of our standard-setting process begs the question: why are we doing all this? The primary reason is to inform our cost-benefit analysis:  some investors question the decision usefulness of goodwill impairment information, while companies have expressed concerns about the costs associated with goodwill impairment testing.

(Mixed) Investor Views on Different Goodwill Models

Some investors question the decision usefulness of goodwill impairment information, while companies have expressed concerns about the costs associated with goodwill impairment testing.

Few investors have any interest in immediately writing off all goodwill. This method undermines the central fair value tenet of the current business combination accounting model.  How does one explain to an investor, or anyone else, that a company paid $1 billion for an acquisition yet recorded only a $500 million asset on its balance sheet?

As to the impairment model, investors hold diverging views.  Opponents point out that goodwill impairments usually do not provide useful information because they are a lagging, rather than a leading, indicator.   On the date of an impairment announcement, a company’s stock price rarely has a strong price move because investors already know if an acquisition has failed.

Critics also point out that goodwill impairments are often big-bath writeoffs many years after an acquisition; that there are few, if any, relevant goodwill disclosures in SEC filings; and that the impairment test itself is actually a test of the goodwill assigned to one or more undisclosed reporting units rather than of a specific acquisition.

Finally, some investors believe that goodwill is an asset with a finite life akin to property, plant, and equipment.  Thus, it should be amortized over its “useful life” just like those other assets. 

Some investors, however, prefer the impairment model.  They say that goodwill impairments can, under certain conditions, provide investors with relevant information, primarily when it is company-specific information unanticipated by the market.  For example, a consumer products company in 2019 announced a major goodwill impairment and the stock price declined 20%+ because the company lowered margin expectations for two of its business units. 

These investors also believe that a goodwill asset on the balance sheet (subject to impairment) holds management accountable for its acquisitions.

My Views on Improving Future Accounting for Goodwill

For this latter reason, management accountability, I favor retaining the current goodwill impairment model.  The current model can be improved, however, if the FASB makes important changes to enhance the usefulness of the information to investors:
  • Improve the model so impairments occur sooner than under today’s accounting model.
  • Enhance acquisition disclosures.  Is an acquisition meeting management’s original forecast? Also, require disclosure of the reporting units that are close to a potential impairment, meaning that the fair value of the reporting unit is close to its carrying (book) value. 
I do not support a return to an amortization model for two reasons: 
  • Reduced management accountability for failed acquisitions.
  • Most investors would choose to disregard, or pro forma out, goodwill amortization in their income statement models. Hence, the information would be of little value.
The FASB is still months away from making any decisions about this important but controversial topic. We want to engage with investors to understand your thoughts on goodwill accounting and what improvements we should consider.  I encourage you to contact Chandy Smith ( and Jeff Brickman (, our investor liaisons, to share your views about goodwill accounting.

The views expressed in this article do not necessarily reflect the views of the FASB. Official positions of the FASB are arrived at only after extensive due process and deliberation.