The Financial Accounting Standards Board (FASB) on Tuesday announced the adoption of an accounting standards update (ASU) that provides an alternative for goodwill triggering event evaluation.
The board ruled at a meeting last month that it would move forward with the ASU. The update takes effect on a prospective basis for fiscal years beginning after Dec. 15, 2019. Early adoption is permitted, but the amendments should not be retroactively applied to financial statements already issued. No additional disclosures would be required upon use of the alternative.
The scope of the ASU is limited to private companies and not-for-profits that account for goodwill and test impairment under Subtopic 350-20 (Intangibles—Goodwill and Other—Goodwill). The update aims to give private companies and not-for-profits an alternative for evaluating and measuring goodwill impairment at their reporting dates, including interim reports.
GAAP requires goodwill to be tested for impairment whenever a triggering event occurs that indicates it is more likely than not the fair value of the reporting unit is less than its carrying value. The ASU’s objective is to address the cost and complexity for these entities that are currently required to perform triggering event evaluations and measure potential impairment in interim periods although they only prepare GAAP financial statements annually.
At the time FASB first proposed the update in December, the organization noted stakeholders cited uncertainty caused by COVID-19 on a short-term basis as an added burden to cost and complexity under the former rules.