Goodwill Impairment Testing – Time to Revisit?

FASB’s invitation to comment on goodwill accounting lays out possible cases for doing away with or improving impairment testing.

As far back as the spring of 2016, the Financial Accounting Standards Board was telling CFO that it planned to take another look at goodwill accounting for public companies. At the time, FASB had issued its proposal to change the guidance for goodwill impairment, which later was adopted.

The next step, a FASB spokesperson declared three years ago, was to consider whether to permit or require the amortization of goodwill. “Advocates of allowing companies to amortize the recognition of goodwill in the years following a merger argue that it would free companies of a burden that has no limits,” we wrote at the time.

That burden, of course, is having to perform annual impairment tests, often requiring hiring outside valuation experts to determine the fair market value of acquired reporting units. As CFO pointed out, “Annual goodwill analysis and reporting never ends for a company after it has acquired another entity. If companies were able to amortize goodwill, then at, some point, it would vanish from their books and they wouldn’t have to report it.”

Fast forward to this week. On July 9, FASB issued an Invitation to Comment (ITC) seeking preparer and investor input on the accounting for certain identifiable intangible assets acquired in a business combination and subsequent accounting for goodwill. FASB also posted a video on YouTube promoting the effort.

Read full article.

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