This free, guided checker walks your finance team through the key decision points for ASC 350 Goodwill Impairment Testing. Answer a few questions to see the likely treatment and the evidence to document.
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This tool is a high-level US GAAP screening aid for general information only and is not accounting, audit or legal advice. Conclusions require entity-specific evidence and judgement - confirm the treatment with your advisor.
Here is what the checker asks and why each step matters. Prefer to talk it through? Contact us and we will help directly.
Goodwill is tested at the reporting unit level at least annually, at the same time each year, and between annual tests when a triggering event occurs.
No annual test is due and no triggering event is present, so no impairment test is required now; continue monitoring for triggering events under ASC 350-20-35-30.
Official guidance: FASB Accounting Standards Codification
Identify and document why the test is being run, because the basis drives the evidence to gather and the measurement date to use. An annual test is performed on the same date each year, while an interim test is triggered by events since the last measurement and uses the date those events crystallized. A common misstep is running only the annual test and overlooking an interim triggering event that arose earlier in the year, which can delay a required charge.
Use the interactive tool above to see how this applies to your situation.
Official guidance: FASB Accounting Standards Codification
The qualitative assessment is an unconditional option; an entity may go straight to the quantitative test and may resume the qualitative approach in a later period.
Use the interactive tool above to see how this applies to your situation.
Official guidance: FASB Accounting Standards Codification
Weigh the qualitative factors in ASC 350-20-35-3C in total, including macroeconomic conditions, industry and market developments, cost factors, overall financial performance, and entity-specific events, against the more-likely-than-not (greater than 50 percent) threshold. Give weight to the cushion from the most recent quantitative test and to positive and mitigating factors, not only the negative evidence. A common misstep is stopping at the first negative indicator without weighing the offsetting evidence, which forces an unnecessary quantitative test.
It is not more likely than not that fair value is below carrying amount, so the quantitative test is unnecessary under ASC 350-20-35-3D; document the qualitative assessment.
Official guidance: FASB Accounting Standards Codification
Under ASC 350-20-35-31, a reporting unit's assets and liabilities are tested and adjusted under other applicable GAAP (for example ASC 360 for long-lived assets and ASC 330 for inventory) before goodwill is tested, so the carrying amount compared with fair value is current. Perform the impairment tests in the correct order, because a write-down of another asset lowers the reporting unit carrying amount and can change the goodwill result. A frequent error is testing goodwill first, which overstates the reporting unit carrying amount and can produce an incorrect goodwill charge.
Test and adjust the reporting unit's other assets under their applicable guidance before measuring goodwill impairment, as required by ASC 350-20-35-31.
Official guidance: FASB Accounting Standards Codification
Measure the fair value of the reporting unit under ASC 820 from a market participant perspective, typically using an income approach, a market approach, or a combination, and compare it with the reporting unit carrying amount that includes allocated goodwill. Reconcile the aggregate fair value of all reporting units to the entity's market capitalization and evaluate any implied control premium for reasonableness. A common misstep is measuring fair value and carrying amount on inconsistent bases, such as excluding an item from one but not the other.
Fair value equals or exceeds carrying amount, so goodwill of the reporting unit is not impaired under ASC 350-20-35-8; retain the fair value support.
Official guidance: FASB Accounting Standards Codification
The impairment loss equals the amount by which the carrying amount exceeds fair value, but it cannot exceed the total goodwill allocated to the reporting unit; consider the effect of any tax deductible goodwill.
Recognize a goodwill impairment loss equal to the excess of carrying amount over fair value, limited to the goodwill allocated to the reporting unit under ASC 350-20-35-8. Recognize a goodwill impairment loss equal to the full excess of carrying amount over fair value, which is within the allocated goodwill, under ASC 350-20-35-8.
Official guidance: FASB Accounting Standards Codification
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