FASB proposes easing goodwill impairment testing for private companies

The number of goodwill impairment calculations for private companies will be reduced—and the method will be made simpler—under a new proposal from the Financial Accounting Standards Board. Also, private companies would be allowed to amortize goodwill.

The proposal is derived from the FASB’s Private Company Council (PCC) Issue No. 13-01B, Accounting for Goodwill Subsequent to a Business Combination.

There would be fewer goodwill impairment calculations because of three provisions in the proposed Accounting Standards Update (ASU): (1) impairment testing would only need to be done upon the occurrence of a triggering event; (2) impairment would be assessed at the entity level rather than at the reporting-unit level; and (3) goodwill could be amortized over a short useful life (not to exceed 10 years).

Under a simplified method, the proposed ASU would eliminate the complicated Step 2 of the goodwill impairment test under current U.S. GAAP in ASC 350-20. Instead, private companies would measure goodwill impairment using Step 1 (the excess of the entity’s carrying amount over its fair value).

If a private company elects to use the alternative accounting for goodwill, it must prospectively apply the proposed ASU to all existing goodwill and any new goodwill resulting from future business combinations.