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Big changes in store for goodwill testing, report says

Tammy Whitehouse | October 24, 2018

Big changes in tax and accounting rules should produce big changes in goodwill impairment testing this year, according to a new report from Mercer.

The Tax Cuts and Jobs Act, for example, has produced a number of changes for companies to consider in both their qualitative and quantitative assessments of any goodwill sitting on their balance sheets. Companies are required under Accounting Standards Codification Topic 350 to test goodwill, which is an intangible asset that results from mergers or acquisitions, to determine if its value is holding up or should be marked down.

The standard tells companies to consider things like macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, other entity-specific events, asset impairments, major dispositions, or sustained declines in share price when making the first-step qualitative assessment of whether goodwill might be holding up. Many of those same factors have seen...

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