With the FASB ending its project to simplify goodwill impairment testing, it’s a good time to become reacquainted with current guidance.
The risk associated with testing goodwill for impairment has reemerged for many companies due to recent unfavorable industry and macroeconomic changes. The goodwill impairment testing process can be a complex and technical analysis – one that can be especially challenging during times of heightened volatility. As a result, since 2014, the Financial Accounting Standards Board (FASB) has issued various guidance to simplify the goodwill impairment test, including creating alternatives for private companies and not-for-profit (NFP) entities to amortize goodwill. Additionally, in 2018 the FASB started a project with the goal of simplifying subsequent accounting for goodwill for both public and private companies. Some of the proposed changes were:
- Amortizing goodwill for public companies on a straight-line basis over a 10-year default period or over an estimated period (using an open list of factors to consider), limited to a 25-year cap
- Potentially not recognizing customer relationships and noncompete agreements in a business combination for public entities
In June of 2022 the board unanimously voted to remove this project from the technical agenda. With the FASB ending its 2018 goodwill project, the current guidance remains unchanged.