The article provides an interpretation of the simplified test for goodwill impairment, issued by the FASB, on January 26, 2017. The amendment requires only a one-step quantitative impairment test and eliminates the step 2 of the current two-step quantitative impairment test. A public business entity should adopt the amendments in this update of accounting standards for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019.
 

Simplifying the Test for Goodwill Impairment

On January 26, 2017, the FASB issued Accounting Standards Update No. 2017-04, Intangibles—Goodwill and Other: Simplifying the Test for Goodwill Impairment. The new guidance requires only a one-step quantitative impairment test, whereby a goodwill impairment loss will be measured as the excess of a reporting unit’s carrying amount over its fair value (not to exceed the total goodwill allocated to that reporting unit). It eliminates Step 2 of the current two-step goodwill impairment test, under which a goodwill impairment loss is measured by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill.
 
 Specifically, the Amendment:

1. Retains the optional qualitative assessment (Step 0) of goodwill impairment.
2. Applies the same one-step impairment test to all reporting units, including those with zero or negative carrying amounts, and requires disclosure of the amount of goodwill allocated to reporting units with zero or negative carrying amounts.
3. Provides guidance on issues related to income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. This guidance also is incorporated into the private company accounting alternative for goodwill.

 

Effective Dates

 A public business entity that is a U.S. Securities and Exchange Commission (SEC) filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019.
 
Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.