FASB Proposes Simplifying Goodwill Impairment Testing

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The Financial Accounting Standard Board issued a Proposed Accounting Standards Update on May 12, 2016 that would simplify goodwill impairment testing by removing Step 2 of the testing process. Historically, if goodwill was deemed impaired under a Step 1 analysis, a Step 2 analysis would have to be performed. The Step 2 procedures included determining the fair value of each of the company’s assets and liabilities to determine the implied fair value of the goodwill and the applicable impairment charge, if any, that should apply.

FASB has now proposed that an entity recognize an impairment charge directly to goodwill for the amount by which the carrying amount of total assets and liabilities exceeds their collective fair value. This change simplifies the allocation and testing procedures under Step 2, with an intended result of reducing the cost and complexity of goodwill impairment testing.

For a complete discussion of FASB’s proposal, please click here.

FASB is requesting comments by July 11^th, which can be submitted through its website.

For more information on goodwill impairment testing, please contact Gina Miller by calling 770.396.2200.

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