Financial Accounting Standards Board (FASB) and Goodwill Impairment for Public Companies and Not-for-Profit Organizations

Business Advisors|Not-for-Profit|Public Companies

By Stephen Thimons

Recently, the Financial Accounting Standards Board (“FASB”) discussed whether and how to change the subsequent (post-transaction) accounting for goodwill for public companies and not-for-profit entities.  Based upon these discussions, the Board decided to move forward under a two-phased approach:

Financial Accounting Standards Board (FASB) Goodwill Impairment Two-Phased Approach

  • Phase 1 – Simplify goodwill impairment testing by eliminating Step 2 of the goodwill impairment test.  The FASB considered, but decided not to let companies have an option to perform Step 2. 
  • Phase 2 – The FASB agreed to work concurrently with the International Accounting Standard Board (“IASB”) regarding any additional concerns about subsequent accounting for goodwill.

While the details of Phase 2 are obviously not clear, if Phase 1 is implemented (it is still not final), this would reduce the complexity of the goodwill impairment test for public companies and not-for-profit entities.

The goodwill impairment test for public companies had always been a two-step process.  Step 1 involved comparing the carrying value of a reporting unit’s equity to its fair value.  If the carrying value exceeded fair value, Step 2 was required.  Step 2 required performing a hypothetical purchase price allocation in order to quantify the amount of goodwill impairment.  Under the proposed changes, goodwill impairment would be measured as the difference between the carrying value and fair value of a reporting unit (assuming carrying value exceeds fair value) as determined in Step 1. 

This change was based in part on the FASB’s Private Company Council’s (“PCC”) decision to eliminate Step 2 of the goodwill impairment test for private companies.

We will keep you updated as more information on this topic becomes available from the FASB.  However, if you have any questions on goodwill impairment and other fair value measurements, please contact Schneider Downs and visit our Business Advisors page to learn more about the other business advisory services that we offer

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2018 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.