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FASB drops Step 2 from goodwill impairment test

  • FASB (US Financial Accounting Standards Board) (lt blue) Image

Jan 26, 2017

On January 26, 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2017-04 "Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment," which eliminates Step 2 from the goodwill impairment test.

Under the amendments, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, but the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

Eliminating Step 2 from the goodwill impairment test under Topic 350 also results in guidance that more closely aligns with the requirements in IFRS as indicated in IAS 36, Impairment of Assets, for some aspects of the goodwill impairment test. IAS 36 requires an entity to test goodwill for impairment using a one-step quantitative impairment test; however, that test is at the cash-generating unit or group of cash-generating units level and compares the carrying amount of that unit with its recoverable amount.

Review the ASU and a summary on the FASB's website.

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