May 9th, 2011 by Brian Bornino
On April 22, 2011, the FASB issued an Exposure Draft to ASC 350, Intangibles – Goodwill and Other that would alter the process by which companies would conduct goodwill impairment testing.
The highlight of the Exposure Draft is that instead of a company having to follow the two-step process that was originally outlined in SFAS 142, an initial step would be performed in which a company can qualitatively determine whether it is more likely than not that impairment exists, taking into account factors such as market conditions, company performance, industry factors, etc. If management determines that there is 50%+ likelihood that goodwill is not impaired, then the company would not need to perform any impairment analysis in accordance with the two-step process above.
In my opinion, this Exposure Draft misses the mark for several reasons:
I suspect that this Exposure Draft will be adopted after the comment period ends on June 6, and that nearly every company will adopt early to simplify their impairment testing processes. I am hopeful that the quality and integrity of company financial statements is maintained, although I am fearful that the FASB’s new rules will result in a goodwill impairment testing process that is…well,…impaired.