Beginning in 2015, private companies will need to make an accounting election to either begin amortizing goodwill or disclose the election to continue the historical process of assessing goodwill through an annual impairment test.
Accounting Standards Update No. 2014-02, Intangibles – Goodwill and Other (Topic 350): Accounting for Goodwill, was issued by the FASB in January 2014. Companies that elect to amortize goodwill will do so on a straight-line basis over the lesser of 10 years, or the most appropriate useful life. Companies not electing to amortize goodwill are required to make an accounting policy election to test goodwill for impairment.
Consistent with current guidance, companies would test goodwill for impairment when a triggering event occurs indicating the fair value of the Company (or a reporting unit) may be below its carrying amount. When a triggering event occurs, a company has the option to first assess qualitative factors to determine whether the quantitative impairment test is necessary.
If that qualitative assessment indicates that it is more likely than not that goodwill is impaired, the entity must perform the quantitative test to compare the entity’s fair value with its carrying amount, including goodwill. If the qualitative assessment indicates that it is not more likely than not that goodwill is impaired, further testing is unnecessary. The goodwill impairment loss, if any, represents the excess of the carrying amount of a company over its fair value. The goodwill impairment loss cannot exceed a company’s (or the reporting unit’s) carrying amount of goodwill. The disclosures required under this alternative are similar to existing U.S. GAAP. However, companies electing the accounting alternative are not required to present changes in goodwill in a tabular reconciliation. Early application is permitted, including application to any period for which a company’s annual or interim financial statements have not been made available for issuance.