In late April FASB published an exposure draft related to goodwill impairment testing under ASC 350 that, if adopted, would result in the below changes to GAAP. The stated objective of the Exposure Draft is to reduce the cost and complexity faced by financial statement preparers related to complying with the Step One goodwill impairment test (note: indefinite-lived intangible asset testing is not addressed). Brad Pursel (Brown Smith Wallace) provided BVWire with a summary of significant proposed updates:
- Companies can no longer carry over the fair value determination from a prior year impairment test.
- A qualitative approach would eliminate need to perform a quantitative evaluation unless qualitative evaluation results in more likely than not (i.e., greater than 50%) probability that carrying value exceeds fair value.
- If the carrying value is zero or negative and qualitative evaluation results in more likely than not probability that goodwill is impaired, then companies may proceed directly to Step Two.
- In terms of disclosure, there is no need to disclose Level 3 assumptions when analyzing goodwill impairment.