FASB Issues Proposed Accounting Standards Update on Testing Goodwill for Impairment

Norwalk, CT, April 22 2011—The Financial Accounting Standards Board (FASB) today issued an Exposure Draft of a proposed Accounting Standards Update (Update) intended to simplify how an entity is required to test goodwill for impairment.

“Nonpublic companies have expressed concerns to the Board about the cost and complexity of performing the goodwill impairment test,” states FASB member Daryl Buck. “The proposals contained in this Update are intended to address those concerns and to simplify and improve the process for public and nonpublic entities alike.”

The amendments in this Update would allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Current guidance requires an entity to test goodwill for impairment, on at least an annual basis, by first comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit is less than its carrying amount, then the second step of the test must be performed to measure the amount of impairment loss, if any. Under the proposed amendments, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The proposals include a number of factors to consider in conducting the qualitative assessment.

If approved, the amendments in the proposed Update would be effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption would be permitted.

The comment period for the proposed Update extends through June 6, 2011. The Exposure Draft is available at For this proposed Update, the FASB is piloting a new electronic constituent feedback form intended to make it easier to submit comments. Constituents wishing to provide traditional comment letters via the current process can continue to do so.

About the Financial Accounting Standards Board

Since 1973, the Financial Accounting Standards Board has been the designated organization in the private sector for establishing standards of financial accounting and reporting. Those standards govern the preparation of financial reports and are officially recognized as authoritative by the Securities and Exchange Commission and the American Institute of Certified Public Accountants. Such standards are essential to the efficient functioning of the economy because investors, creditors, auditors, and others rely on credible, transparent, and comparable financial information. For more information about the FASB, visit our website at