most affect a reporting unit’s fair value or
carrying amount and consider the effect of
any positive or mitigating circumstances. If an
entity has a recent fair value calculation for a
reporting unit, it also should include as a factor
in its consideration the difference between the
fair value and the carrying amount in deciding
whether the first step of the impairment test is
necessary.
None of the individual examples of events and
circumstances included above are intended to
represent stand-alone events or circumstances
that necessarily require an entity to perform
the first step of the goodwill impairment test.
Also, the existence of positive and mitigating
events and circumstances is not intended to
represent a rebuttable presumption that an
entity should not perform the first step of the
goodwill impairment test.
Implementation Considerations
When deciding whether to use the qualitative
assessment for its test for goodwill
impairment, evaluate the performance of an
entity’s reporting units since the last analysis.
In doing so, an entity should compare its actual
performance with projected performance
in the most recent quantitative evaluation.
Underperformance to budget may indicate
that the quantitative assessment
should be completed.
Also, if the quantitative
impairment test of a reporting
unit was narrowly passed in the
most recent evaluation, it may be
difficult to conclude qualitatively
that the fair value is greater
than the carrying value. Further,
Once an entity decides to use the qualitative
assessment, it should start with the most
recent reporting unit fair value analysis.
Consider how sensitive that analysis is to
changes in events and circumstances during
the period. Document all relevant factors,
but focus the qualitative analysis on the
primary drivers of a reporting unit’s fair value
and those most sensitive to change. For the
The more time that has
passed since the last
quantitative assessment,
the more demanding
it may be to apply the
qualitative assessment.
specific and most sensitive qualitative factors
identified for each reporting unit, identify the
required resources and implement a process
to monitor changes in the qualitative factors
on a periodic basis.
For each reporting unit, document the analysis
using a tabular or narrative format that
can be updated at each test date. Include a
documented conclusion for each reporting unit
that indicates whether it is more likely than
not that the fair value of the reporting unit is
less than its carrying amount. The conclusion
should be based on the documented relevant
facts and circumstances considered in
the evaluation, including the positive and
mitigating circumstances.
Here are a few other steps to consider:
•;Determine if and how frequently an entity
will refresh the quantitative analysis for
a reporting unit. Although not required,
an entity may wish to do so periodically to
provide a basis to simplify the qualitative
assessment with the goal of reducing overall
long-term costs. This decision should be
based on each reporting unit’s facts and
circumstances.
•;Prepare transparent disclosure. The FASB
intends for an entity to make a positive
assertion about its conclusions reached and
the events and circumstances taken into
consideration if it determines that the first
step of the impairment test is not required.
•;For public companies with multiple reporting
units, determine how a market capitalization
reconciliation will be performed when both
the qualitative and quantitative impairment
approaches are applied to separate reporting
units.
•;Discuss the plan for implementation of the
revised standard with the entity’s auditors
early in the process.
Testing Goodwill Between Annual
Tests
The FASB did not change when an entity
should test goodwill for impairment. Testing
goodwill between annual tests is still required
if an event occurs or circumstances change
that would more likely than not reduce the fair
value of a reporting unit below its carrying
amount. The revised standard replaced
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