Historically, few financial reporting matters require the time, expertise, and expense as evaluating goodwill impairment. Preparers of financial statements have had to grapple with both accounting theory and valuation techniques to determine whether goodwill impairment exists. The Financial Accounting Standards Board (FASB) has previously attempted simplification with the introduction of an option to perform a qualitative assessment to determine if a quantitative impairment test is necessary, but further changes were needed. Recently, the FASB issued guidance (Accounting Standards Update No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment) to further simplify the accounting for goodwill impairment, and if you haven’t already considered early adopting the guidance, you may want to take a closer look to simplify 2018 reporting.


Previously, when evaluating goodwill impairment, a hypothetical purchase price allocation (i.e. step 2) was required which often resulted in the need for valuation work by the preparers of financial statements and their auditors. The FASB has removed this requirement. Goodwill impairment is now recognized as the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of the goodwill. All other aspects of the goodwill impairment guidance remain unchanged including the option to perform a qualitative assessment in order to determine whether a quantitative assessment is necessary.

The elimination of the requirement to determine the individual fair value of assets and liabilities associated with an identified reporting unit greatly simplifies the evaluation of goodwill impairment. This change may impact the amount of goodwill impairment recognized (in either direction) when compared to today's practice. Additionally, under current guidance a failed "step-one" test does not always result in impairment; however, under the revised guidance a failed "step-one" will always result in goodwill impairment.


The revised guidance is applicable on a prospective basis, and is effective for calendar year-end public company filers in 2020 (certain other public company entities have an additional year to adopt). Private entities that have not already adopted the private company goodwill alternative are required to adopt the revised guidance in 2022. There is specific transition guidance for those private companies that have adopted the private company goodwill alternative.

Early adoption is permitted for impairment tests performed after January 1, 2017, so the revised guidance and its simplified approach is now available for adoption today. Entities may want to consider adopting today to make their reporting a little simpler for 2018.

For More Information

If you have questions about goodwill impairment, contact James Comito of MHM's Professional Standards Group. James can be reached at jcomito@cbiz.com.

Published on February 12, 2018