In March 2021, the Financial Accounting Standards Board (FASB) introduced ASU 2021-03, focusing on Intangibles – Goodwill and Other (Topic 350). This update brings forth a notable shift in the landscape of goodwill impairment testing, particularly beneficial for qualifying private companies and nonprofit entities. The core alteration allows these entities the flexibility to conduct the necessary goodwill triggering event assessment exclusively at the conclusion of a reporting period, whether it be an interim or an annual period. Under this alternative approach, qualifying entities are liberated from the obligation to perform the assessment intermittently during a reporting period, with the assessment now mandated solely at the conclusion of each reporting period.
Before this pivotal change, a goodwill triggering event had the potential to necessitate a goodwill impairment test in the midst of a reporting period. Furthermore, in the absence of this modification, goodwill would have been subjected to an impairment test whenever a triggering event indicated a likelihood that the fair value of any reporting unit's allocated goodwill fell below its carrying value.
The prior requirement compelled entities to monitor potential goodwill impairing events throughout the entirety of a reporting period. This entailed a meticulous consideration of whether an event or altered circumstances could impact previous impairment conclusions. This requirement was not exclusive to public companies; it also extended to qualifying nonpublic or nonprofit entities that had opted for the simplified accounting alternative, evaluating goodwill impairment at the entity level rather than the reporting unit level.
For certain entities, the value of identifying and assessing goodwill impairment in between reporting dates was more limited, especially for those entities issuing GAAP-compliant financial statements annually. The associated costs and complexities involved in projecting cash flows and executing other necessary procedures for evaluating goodwill impairment at an earlier date frequently outweighed the benefits of conducting a timely impairment analysis.
The effective date of this amendment is applicable to fiscal years commencing after December 15, 2019, with the provision for early adoption permitted for interim and annual financial statements that had not been issued or made available for issuance as of March 30, 2021. It is important to note that prospective treatment is mandatory for entities availing themselves of this relief.
As financial reporting undergoes these changes, staying abreast of developments is crucial for professionals in the accounting and auditing domain. This update signifies a significant departure from traditional practices, streamlining the process for qualifying entities and alleviating the burden of conducting frequent assessments during reporting periods.
It is essential for practitioners to note that the content provided in this article is for informational purposes only and does not constitute tax advice. Any specific concerns or inquiries related to individual tax situations should be directed to a qualified tax advisor for advice tailored to the specific circumstances.
The individual behind this informative insight, Jennifer, boasts an impressive career spanning more than 25 years. Her expertise lies in designing top-tier training programs covering a diverse range of technical and "soft-skills" topics crucial for both professional and organizational success. In 2003, Jennifer established Emergent Solutions Group, LLC, focusing on delivering practical and engaging accounting and auditing training. She commenced her career in audit at Deloitte & Touche and graduated summa cum laude from Marymount University with a B.B.A. in Accounting.
As the accounting landscape evolves, professionals can rely on resources such as the Vishal blog to stay informed about critical updates affecting audits. By staying engaged with industry developments, accountants can navigate changes effectively and uphold the highest standards of excellence in their practice.