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On January 26, 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2017-04
Intangibles: Goodwill and Other (Topic 350). The ASU seeks to simplify the goodwill impairment test for public business entities and not-for-profit entities, similar to the alternative accounting treatment for goodwill previously provided to private companies under ASU 2014-02
Intangibles: Goodwill and Other (Topic 350).
Previously, entities had to perform both Steps 1 and 2 of the goodwill impairment test when subsequently measuring goodwill. This ASU eliminates the requirement to perform Step 2, thus, requiring only a comparison of the fair value of a reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. However, the loss recorded should not exceed the total amount of goodwill allocated to that reporting unit.
The ASU further eliminates the requirement for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment, therefore, removing the obligation to perform Step 2 for these reporting units if the assessment failed. However, an entity may still choose to perform the qualitative assessment to determine if the quantitative impairment test is necessary. Either way, the entity must disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount.
The amendments are applicable to public business entities and other entities that have goodwill reported in their financial statements and have not elected the private company alternative, as follows:
The amendments are effective as follows:
Early adoption is permitted for interim or annual goodwill impairment tests performed after January 1, 2017.
An entity is required to disclose the nature of and reason for the change in accounting policy upon transition in the first annual period, and in the interim period within the first annual period, when the entity initially adopts this ASU.
To access the full script of ASU No. 2017-04, click
To access the full script of ASU No. 2014-02, click
For more information on the financial reporting library, contact a local
MNP Assurance Professional, or
Jody MacKenzie, Director, Assurance Professional Standards.
This communication contains a general overview of the topic and is current as of January 26, 2017. The application of the principles addressed will depend upon the particular facts and circumstances of each individual case. Accordingly, this publication is not a substitute for professional advice and we recommend that any decisions you take about the application or not of any of the information presented be made in consultation with a qualified professional, who can address any variance that may be required to reflect your circumstances. Please contact your local MNP representative for customized assistance with the application of this material. MNP LLP accepts no responsibility or liability for any loss related to any person's use of or reliance upon this material. © MNP LLP 2017. All rights reserved.
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