Goodwill Impairment Testing Relief for Certain Entities
In March 2021, the Financial Accounting Standards Board (FASB) issued ASU 2021-03, Intangibles – Goodwill and Other (Topic 350.)
Now, qualifying private companies and nonprofit entities have a new option to perform the required goodwill triggering event assessment at the end of a reporting period only, whether that is an interim or annual period. Under this alternative, qualifying entities will no longer be required to perform this assessment during a reporting period, only at the end of each reporting period.
Without this change, a goodwill triggering event may lead to a required test for goodwill impairment in the middle of a reporting period. Additionally, had this change not been implemented, goodwill must have been tested for impairment whenever there was a triggering event indicating that it was more likely than not that the fair value of any reporting unit allocated goodwill was below its carrying value.
This requirement necessitates monitoring possible goodwill impairing events throughout an entire reporting period, considering whether an event or changed circumstances could impact previous impairment conclusions. This requirement also extends to qualifying nonpublic or nonprofit entities that have elected the simplified accounting alternative to evaluate goodwill impairment at the entity level instead of the reporting unit level.
For certain entities, there is more limited value to identify and evaluate goodwill impairment in between reporting dates, especially for entities that only issue GAAP-compliant financial statements on an annual basis. The cost and complexity in projecting cash flows and other necessary procedures for evaluating goodwill impairment at an earlier date would often exceed the benefits of making the timely impairment analysis.
The effective date is for fiscal years beginning after December 15, 2019, with early adoption allowed for interim and annual financial statements that have not yet been issued or made available for issuance as of March 30, 2021. Prospective treatment is required.
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The content contained in this article is for informational purposes only and is not tax advice. You should consult a tax advisor for advice applicable to your situation.
Jennifer has more than 25 years of experience in designing high-quality training programs in a variety of technical and “soft-skills” topics necessary for professional and organizational success. In 2003, she founded Emergent Solutions Group, LLC, where she focuses on designing and delivering practical and engaging accounting and auditing training. Jennifer started her career in audit for Deloitte & Touche. She graduated summa cum laude from Marymount University with a B.B.A. in Accounting.