On April 22, 2011, the FASB issued an exposure draft of a proposed Accounting Standards Update that would change the goodwill impairment test under US GAAP. Aimed at reducing the cost and complexity of applying current requirements, the proposal would allow an entity first to assess "qualitatively" whether it is necessary to perform the current two-step goodwill impairment test. Further testing would be required only if an entity determines it is more-likely-than-not that a reporting unit's fair value is less than its carrying amount. Otherwise, no further testing would be required. If the qualitative assessment indicates that an impairment is more-likely-than-not, the entity would then need to perform the two-step impairment test under the current guidance.
The proposed changes would apply to all entities—both public and nonpublic—that have goodwill reported in their financial statements. Comments on the proposal are due on June 6, 2011. This Dataline takes a closer look at the proposal and includes our observations on certain key areas.