Yesterday, the FASB voted to amend the guidance in ASC 350¹ on how an entity should assess goodwill for impairment. Under the proposed model, an entity could first evaluate qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. A quantitative calculation to determine whether goodwill may be impaired would only be required if the reporting unit fails the more-likely-than-not qualitative test (although an entity may choose to “skip” the qualitative test and immediately perform the quantitative test). The proposal would not change the requirement in ASC 350 to test goodwill (1) annually or (2) “if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.”

The project is in response to concerns by nonpublic entities regarding the cost of preparing the quantitative fair value calculation for an annual goodwill impairment test. However, the proposal would apply to both public and nonpublic entities.

The Board discussed a possible effective date of fiscal years beginning after December 15, 2011, and would permit early adoption. An exposure draft of a proposed ASU is expected to be issued in April 2011.

[1] FASB Accounting Standards Codification Topic 350, Intangibles — Goodwill and Other.