FASB Simplifies Goodwill Impairment Accounting for Public Business Entities

• DOI: http://doi.org/10.1002/jcaf.22285
• Date: 01 July 2017
• Author: Paul Munter
• Published date: 01 July 2017

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© 2017 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI 10.1002/jcaf.22285

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FASB Simplifies Goodwill Impairment

Accounting for Public Business Entities

Paul Munter

The accounting for goodwill

has traveled a long and winding

road over the history of U.S.

generally accepted account-

ing principles (GAAP). This

topic was first addressed by

authoritative standard setting

in 1944.1 Prior to that first

standard-setting initiative,

practice was mixed, with some

entities writing off goodwill

and other indefinite-lived

intangible assets against paid-

in capital at the date of the

acquisition. In Accounting

Research Bulletin (ARB) 24,

the Committee on Accounting

Procedure concluded that such

a practice was not appropriate

and that acquired intangible

assets should be recognized as

assets. However, ARB 24 did

not conclude on the question

of whether all intangible assets

should be amortized, and thus,

practice on that point was

mixed.

Accounting Research

Study (ARS) 10 examined

the accounting for goodwill

and that study made several

recommendations for con-

sideration by the Accounting

Principles Board (APB).2 The

APB considered these and

other questions regarding the

accounting for goodwill, and

in Opinion 17 the APB con-

cluded that all intangible assets,

including goodwill, should be

amortized over a maximum

period of 40 years.3 As such,

APB Opinion 17 established

the dual model of amortization

of goodwill and impairment,

when indicated. However,

APB Opinion 17 did not pro-

vide guidance on determining

whether goodwill was impaired

or at what level that determina-

tion should be made. Addition-

ally, APB Opinion 17 provided

for prospective transition. As

a consequence, goodwill that

was acquired prior to Novem-

ber 1, 1970, that was not being

amortized continued to not

be amortized. Therefore, even

after the requirement that all

intangible assets be amortized

was established by APB Opin-

ion 17, practice still was mixed

because previously acquired

goodwill that was not being

amortized was grandfathered

from the requirement to amor-

tize acquired goodwill.

The topic was not

addressed again by authorita-

tive standard setting until the

Financial Accounting Stan-

dards Board (FASB) issued

Statement 142 more than 30

years later.4 In Statement 142,

the FASB established a require-

ment that goodwill acquired in

a business combination would

not be amortized and that it

be tested at least annually for

impairment at the reporting

unit level.

More recently, the FASB’s

constituents have been ask-

ing that the Board reconsider

goodwill accounting. In doing

so, the FASB has made several

recent changes to the account-

ing for goodwill including:

(a) permitting a “Step Zero”

test to be used prior to “Step 1”

of the goodwill impairment,

(b) providing a private com-

pany alternative to accounting

for goodwill, and most recently

(c) revising the goodwill

impairment test for public busi-

ness entities and private com-

panies that have not adopted

the private company alternative

making it a one-step test rather

than the two-step test that was

established by Statement 142.

At the same time the FASB

has made these changes to the

accounting for goodwill, the