Alert: FASB Accounting Standards Update No. 2017-04 – Intangibles: Goodwill and Other

Category: US GAAP

Alert: FASB Accounting Standards Update No. 2017-04 – Intangibles: Goodwill and Other

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:

  • Public business entities that are US Securities and Exchange Commission (SEC) filers – annual goodwill impairment tests in fiscal years beginning after December 15, 2019, including any interim tests therein.
  • Public business entities that are not US SEC filers – annual goodwill impairment tests in fiscal years beginning after December 15, 2020, including any interim tests therein.
  • All other entities, including non-profit entities – annual goodwill impairment tests in fiscal years beginning after December 15, 2021, including any interim tests therein.

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 here.

To access the full script of ASU No. 2014-02, click here.

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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Michelle Balmer

Michelle Balmer CPA, CA

Vice President, Assurance

Michelle Balmer, CPA, CA, is a Senior Assurance Services Partner with MNP. With 14 years of experience in public practice, Michelle helps a broad range of public and privately held companies in a variety of industries. She also works on special projects, including costing studies, benchmarking and best-practice studies, operational analyses, litigation support and due diligence.

As a key member of MNP's Assurance team, Michelle has played an instrumental role in assurance policy development, implementing accounting and assurance standards firm-wide and educating assurance practitioners regarding methodologies and new pronouncements. She also provides technical advice and consultation on accounting and assurance issues, as well as on rules of professional conduct issues, to all MNP practitioners.

Michelle was certified a Chartered Accountant (CA) after obtaining a Bachelor of Commerce degree from the University of Alberta. She has been actively involved with the Institute of Chartered Accountants of Alberta, including the Chartered Accountants School of Business, in an instructional and marketing capacity. An avid volunteer, she has assisted numerous groups such as the Easter Seals of Alberta, Paralympic Sports Association and Junior Achievement of Northern Alberta.