The 2016 U.S. Goodwill Impairment Study by Duff & Phelps and the Financial Executives Research Foundation (FERF) examines general and industry goodwill impairment trends of 8,500+ U.S. publicly-traded companies, as well as an annual survey of FEI members that tracks the use of optional qualitative goodwill impairment test (a.k.a. “Step 0”) by its members.
Marianna Todorova, a managing director in Duff & Phelps’ Office of Professional Practice, discusses the Goodwill Impairment study and recent changes to impairment reporting proposed by the Financial Accounting Standards Board (FASB).
- Step 0 continues to gain a solid foothold among companies; FASB’s proposal to simplify goodwill impairment testing is very well-received. Over 80 percent of respondents to the 2016 Survey prefer the elimination of Step 2 of the current goodwill impairment test.
- The objective of the new one-step model is to simplify goodwill impairment testing and reduce costs for preparers, while preserving relevant information for investors.
- Apart from the steady rise in the use of Step 0, and the wider acknowledgment of its costs-saving benefits, there has been an increased consideration of best practices in the goodwill impairment testing process, as evidenced by the trends in the use of the AICPA’s Accounting and Valuation Guide Testing Goodwill for Impairment, published in 2013.
- Overall, goodwill impaired by U.S. companies in 2015 more than doubled compared to the prior year, rising to $57 billion in 2015 from $26 billion in 2014.
- The increased use of Step 0 is likely driven primarily by companies getting more comfortable with the qualitative assessment and the related documentation requirements, and sustaining the conclusions reached with their auditors. Additionally, more published guidance is available on the application of Step 0.
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