The Financial Accounting Standards Board
(FASB) has approved an accounting standard which simplifies how a
firm tests goodwill for impairment.

The FASB said the amendments will allow an
entity to first assess qualitative factors to determine whether it
is necessary to perform the two-step quantitative goodwill
impairment test.

Businesses will no longer be required to
calculate the fair value of a reporting unit unless the firm
determines, through a qualitative assessment, that it is more
likely than not that its fair value is less than its carrying

The new guidance for the standard will include
examples of the types of factors to consider in conducting the
qualitative assessment.

“The Board’s decision today comes as a direct
result of what we heard from private companies, which had expressed
concerns about the cost and complexity of performing the goodwill
impairment test,” FASB member Daryl Buck said.

The changes will be effective for annual and
interim goodwill impairment tests performed for fiscal years
beginning after 15 December 2011. Early adoption is permitted.

The FASB issued its initial proposal for
revising the testing of goodwill for impairment in an exposure
draft in April. The FASB expects to issue a final accounting
standards update in September.