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Changes to Goodwill Impairment Testing

Posted 4:36 PM by

It is not uncommon for a manufacturing entity to have goodwill reported on its financial statements.  Historically, goodwill would be tested at least annually for impairment, by comparing the estimated fair value of the reporting unit with the carrying amount of that reporting unit (including the value assigned to goodwill).  It the fair value was determined to be below the carrying value, then the entity would have been required to perform a test to measure the impairment loss on goodwill, if any.

On August 11, 2011, the Financial Accounting Standards Board (FASB) approved amendments to the goodwill accounting standard. Under the amended version, an entity will only have to test goodwill for impairment when there is a triggering event that leads management to believe that there is a "more likely than not" chance that the fair value would be lower than the carrying value. At this point, similar testing under the old standard would be performed. If there is not a triggering event, then the entity would not be required to calculate the fair value of the reporting entity each year.

The FASB anticipates releasing the final Accounting Standards Update in September 2011 with an anticipated effective date of December 15, 2011. For additional information, see the statement from the FASB, FASB Approves Standard to Simplify Testing Goodwill for Impairment.

About the Author
Justin Hayes is a director in Katz, Sapper & Miller’s Audit and Assurance Services Group. Justin works with clients to help ensure accurate financial reporting, keeping an eye on their bottom line, and helping them avoid risk and maximize efficiencies. Connect with him on LinkedIn.

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