Companies are making increased use of the “step zero” method for determining if goodwill on the balance sheet should be marked down, according to a recent analysis by valuation firm Duff & Phelps.

In a random sample of 355 companies that carried goodwill in 2013, 41 percent were able to use the screen without having to perform the usual two-step test for assessing goodwill. That was up from 33 percent of companies in a similar analysis in 2012, the firm reported.

Goodwill is an asset on corporate balance sheets that arises from acquisitions representing the value of a particular acquisition that exceeds its collective assets and liabilities. Accounting rules require companies to take a fresh look at goodwill annually after an acquisition to see if it still holds up over time or should be written down on the balance sheet. Traditionally, accounting rules have required companies to follow a complex two-step process for determining if the goodwill carried on the balance sheet is valid.

The Financial Accounting Standards Board created the qualitative assessment of goodwill in Accounting Standards Update 2011-08 to give companies an easier way to determine if a goodwill markdown might be in order. It is meant to allows companies to perform a high-level qualitative assessment of goodwill to determine if the more detailed quantitative assessment might be necessary. Even with the simplification, however, FASB is still giving fresh consideration to whether there are additional measures that can be taken to make goodwill impairment less of a headache.

Based on the nature of company disclosures, Duff & Phelps had to do bit of extrapolating to determine exactly which companies took advantage of the step zero test and which companies proceeded directly to the full two-step test. FASB says in ASU 2011-08 it intends for companies to make a “positive assertion” about its conclusions if it determines its fair value exceeds its carrying value, but the firm found in some cases “disclosures varied greatly” in terms of discussing assertions and providing information. “We did a good statistical analysis, and we have found an increase in use of step zero,” says Gary Roland, a managing director at Duff & Phelps. “But that had some judgment in it. The disclosures weren’t perfect.”

According to Roland, the increase can be attributed to more than one cause. Companies and their auditors are getting more familiar with the test, first introduced in 2011. The American Institute of Certified Public Accountants produced some guidance on how to apply the test, he says, and the market has improved. “The market is doing well, so coverage is increased,” he says. “That gives a little more comfort in using the step zero test.”

The study suggests the accounting standard is doing what was intended, simplifying and reducing the cost of testing goodwill for impairment in cases where the detailed test isn’t warranted, Roland says. “This is demonstrating the right trend in adoption,” he says.