Dive Brief:
- Finance teams can wait until their company's next reporting period to assess goodwill impairment rather than when a triggering event occurs, the Financial Accounting Standards Board (FASB) decided last week. The change applies to private companies and nonprofits.
- Assessing goodwill impairment after a triggering event has been a problem for companies, especially with the pandemic creating stock volatility in some sectors; the change should be seen as a positive.
- It has "drawn a lot of interest from people," FASB Chair Richard Jones said last month, as he talked about the possibility of changing the rule.
Dive Insight:
Goodwill refers to intangibles above book value of a company at the time it is acquired by another company. FASB rules require companies to assess any impairment to goodwill whenever there's a triggering event, such as a drop in stock valuation.
The new rule, expected to be officially released next month, lets companies wait until their next quarterly or annual reporting period to conduct the impairment test.
Companies had sought this change because testing impairment can be complicated and costly, and if a triggering event occurs long before the next reporting period, the assessment could be outdated by the time the company files its reports. Now companies can wait, helping ensure as accurate an assessment as possible.
