Changes to Goodwill Impairment Testing

 Effective for fiscal years beginning after December 15, 2011 (early adoption is permitted)  Accounting Standards Update 2011-08: Technical Corrections To  Various Topics changes the first step of goodwill impairment testing. Previously, the fair value of the reporting unit was compared to the carrying value of the reporting unit. If the fair value is less than the carrying value (of the reporting unit), then the fair value of the goodwill is compared to the carrying value of the goodwill. If the fair value is less than the carrying value (of the reporting unit), there the goodwill impairment is recognized.

After ASU 2011-08, the first step of the goodwill impairment test is a qualitative test to assess if goodwill is more likely than not to be impaired. An entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. An entity now has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. If the entity determines that it is more likely than not that goodwill is impaired, then the Goodwill impairment test proceeds under the former two step process discussed above.