By Cydney Posner
On August 10, FASB approved a revised accounting standard intended to simplify how an entity tests goodwill for impairment. FASB had received complaints about the cost and complexity of performing the first step of the two-step goodwill impairment test required under "Topic 350, Intangibles—Goodwill and Other," especially for nonpublic companies. The revised standard is intended to simplify goodwill impairment testing by allowing a company to first assess qualitative factors to determine whether it is even necessary to perform the two-step quantitative goodwill impairment test. Under the current standard, a company is required to test goodwill for impairment at least annually using a quantitative analysis that first compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit is less than its carrying amount, then the second step of the test must be performed to measure the amount of impairment loss, if any. Under the amendments, an entity will not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The guidance includes examples of the types of factors to consider in conducting the qualitative assessment. (See my article from 4/29/11.) The amendments will be effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption will be permitted. The FASB expects to issue a final Accounting Standards Update in September 2011.