FASB Simplifies Goodwill Impairment Accounting for Public Business Entities

Date01 July 2017
AuthorPaul Munter
Published date01 July 2017
© 2017 Wiley Periodicals, Inc.
Published online in Wiley Online Library (wileyonlinelibrary.com).
DOI 10.1002/jcaf.22285
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
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

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT