On May 12, 2016, the FASB issued a proposed Accounting Standards Update (Update) that would remove Step 2 from the goodwill impairment test.  The Update, if adopted, would be applicable to public entities and not-for-profit entities and would be very similar to the accounting alternative for private companies, which was promulgated by the Private Company Council (PCC) and endorsed by the FASB in late 2013.  The proposed amendment is intended to simplify the goodwill impairment test,  and would require an entity to recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value.

However, the impairment amount should not exceed the carrying amount of goodwill allocated to a reporting unit.  At present, measuring an impairment charge under Step 2 requires the equivalent of a purchase price allocation at the reporting unit level.  Therefore, the Update is expected to simplify the process, reducing both cost and complexity for reporting entities.  The qualitative assessment of goodwill would remain unchanged and, as warranted, a valuation of the reporting unit would still be necessary to comport with the quantitative impairment test.  Comments on the proposed Update are due by July 11, 2016.

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