The FASB has issued an Exposure Draft related to potential changes to the evaluation of goodwill impairment. Under existing guidance, private companies and not-for-profit entities are required to evaluate goodwill for impairment whenever a triggering event occurs by conducting a goodwill impairment test. This evaluation is supposed to be conducted without the use of hindsight.

As many private companies and not-for-profit entities only present full GAAP financial statements or in-scope financial information annually, the FASB has recognized that by the time the goodwill impairment test is conducted that it may be difficult to not use hindsight in the evaluation. This consideration was exacerbated by the COVID-19 pandemic, which has created significant economic uncertainty. The FASB also recognizes that the facts and circumstances at the date of the triggering event may be substantially different from those that exist at the annual financial reporting date.

Accordingly, the FASB has proposed to allow a private company or not-for-profit entity to not monitor for interim goodwill impairment triggering events and instead to evaluate the facts and circumstances as of year-end to determine whether it is more likely than not that goodwill is impaired. The FASB believes that this will reduce the cost and complexity of the impairment evaluation by aligning the triggering event date with an entity’s year-end. It is anticipated that this update would also provide readers more useful information, as the evaluation would include facts and circumstances at the reporting date.

The changes in this Exposure Draft would be effective prospectively for annual periods beginning after December 15, 2019 with an unconditional one-time option for entities to adopt this alternative prospectively after its effective date without having to assess for preferability.  

Due to the expected final issuance of this proposed guidance in late March 2021, entities will be required to carefully consider what accounting standards will be available to them before the issuance of their calendar year 2020 financial statements.  

The full text of the Exposure Draft is available here.

^{Readers should not act upon information presented without individual professional consultation.}