Companies will have a simpler and less expensive way to apply the goodwill impairment test under rules the Financial Accounting Standards Board approved for finalization on October 10.
The new rule proposes to eliminate the second step of the two-step goodwill impairment test that companies are currently required to perform. The goal of the simplification, first proposed in May, is to reduce costs for preparers while maintaining the usefulness of information provided to financial statement users, board members said.
Under current rules, companies are required to perform a goodwill impairment test at least once a year. Many have complained that the current two-step test is costly and complex, which led to FASB's initial proposal in May. However, some firms have now written FASB that the proposed change, though simpler, could decrease precision of goodwill impairment calculations and cause some firms to recognize impairment where none exists. FASB decided to move forward with the proposal despite the negative comments.
Among other decisions the board affirmed is that the proposal would require prospective application. FASB said it would still need to do an external review of the potential changes, which are being worked on under Phase 1 of a two-phased project.