FASB Proposes Alternative to the Goodwill Triggering Event Assessment

The FASB proposes alternative to the goodwill triggering event assessment in a proposed Accounting Standards Update (ASU). This proposed ASU intends to reduce the complexity for certain private companies and not-for-profit organizations when performing the goodwill triggering event evaluation. Stakeholders are encouraged to review and provide comment on the proposed ASU by January 20, 2021.

Under current GAAP, goodwill is tested for impairment when a triggering event occurs that indicates that it is more likely than not that the fair value of the reporting unit is below its carrying value. Companies and organizations are to monitor for and evaluate goodwill triggering events as they occur throughout the year.

Some stakeholders raise questions about the value of evaluating a triggering event at an interim date when certain private companies and not-for-profit organizations only issue GAAP-compliant financial statements on an annual basis. They note the cost and complexity of preparing interim balance sheets and projecting cash flows that, according to those stakeholders, may not be relevant at the annual reporting date when financial statements are issued.

To address this, the proposed ASU introduces an accounting alternative that allows private companies and not-for-profit organizations that only report goodwill (or accounts that would be affected by a goodwill impairment such as retained earnings and net income) on an annual basis to perform a goodwill triggering event assessment, and any resulting test for goodwill impairment, on the annual reporting date only. It would eliminate the requirement for companies and organizations that elect this alternative to perform this assessment during interim reporting periods, limiting it to the annual reporting date only.

The scope of the proposed alternative to the goodwill triggering event assessment is limited to goodwill tested for impairment in accordance with Subtopic 350-20, Intangibles—Goodwill and Other—Goodwill. The guidance is not limited to a specified time period but available on an ongoing basis. There is no requirement for additional disclosures.

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