In providing “Step Zero” to assessing goodwill impairment, the FASB’s ASU 2010-28 now permits companies to use an optional, qualitative approach to determine whether it is “more likely than not that” the fair value of a reporting unit is less than its carrying amount. (If so, then Step 1 is required.)  But, "Step Zero is not a slam dunk,” according to Mark Zyla (Acuitas), one of several experts to address the NACVA/CTI 2012 Congress on Fair Value in Seattle this week. “Companies who say, 'we've got a break,' are being overly simplistic,” Zyla said. “They still have to be audited." 

Bruce S. Koch (Seattle University) asked:  “Do you know of any studies that indicate how many companies have employed Step Zero?”  In response, Alfred King (Marshall & Stevens), a member of the Appraisal Issues Task Force, described a recent meeting in which members asked each other how many of their clients were using Step Zero. “The answer was very few,” King reported.

In another conference session, Jason W. Woon (KPMG) told attendees that in the recent 2011 Goodwill Impairment Study (from Duff and Phelps and the Financial Executives Research Foundation) the majority of respondents—69% of private companies and 81% of public companies—expected to employ the qualitative assessment for some or all of their reporting units. “Whether they actually go ahead and employ Step Zero is another question,” several attendees added.  For those who couldn’t make the 2-day conference this week, NACVA has made the materials available here.