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New Guidance on Evaluating Goodwill Impairment Triggering Events

May 13, 2021

Attention private companies…the FASB has provided new guidance on goodwill impairment. We have the details here.

The Financial Accounting Standards Board (FASB) has provided new guidance regarding goodwill impairment. Many private companies have elected to amortize goodwill rather than test it annually for impairment; however, impairment testing is still required when a triggering event occurs. Companies are required to consider and evaluate goodwill triggering events when they occur throughout the year. The new guidance discussed below gives companies another option. Here’s what you should know.

What are goodwill triggering events and when do you need to evaluate them?

The pandemic has made it especially difficult to monitor goodwill for impairment throughout a reporting period. Determining whether a triggering event has occurred and, if so, the date it occurred is not always simple. FASB Accounting Standards Update (ASU) 2021-03 provides a new alternative that simplifies the goodwill triggering event evaluation. Here’s what you need to know.

What is a goodwill impairment triggering event?

An event or change in circumstances that more likely than not would reduce the fair value of the reporting unit (associated with the goodwill) below its carrying amount. If a triggering event has occurred, goodwill must then be evaluated to determine if impairment exists and, if so, in what amount.

Here are some examples of possible triggering events:

  • Deterioration in general market conditions
  • Increased competitive environment
  • Decline in overall financial performance of the reporting unit
  • Regulatory or political developments

When is a triggering event analysis required?

Under current guidance, goodwill must be monitored throughout the reporting period. This analysis and resulting goodwill impairment test, if any, are required when a triggering event occurs without considering known changes to facts and circumstances after the triggering event date. For example, if a triggering event occurs early in the reporting period that results in recording a goodwill impairment loss, any recovery in the fair value of goodwill that might occur later in the reporting period would not be considered (the impairment loss would not be adjusted).

ASU 2021-03 provides an accounting alternative to only evaluate for goodwill triggering events at the end of the reporting period. If this alternative is elected, an entity would not evaluate goodwill triggering events and measure any impairment during the reporting period.

This new triggering event accounting alternative can be elected on an ongoing basis and is not limited to periods affected by the COVID-19 pandemic. The accounting alternative applies only to goodwill; it does not affect impairment testing of other assets.

ASU 2021-03 is effective for years beginning after December 15, 2019.

Contact us for further information.

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