Defining Issues
®
May 2016, No. 16-18
FASB Proposes to Simplify
Goodwill Impairment Accounting
The FASB is proposing to simplify the subsequent measurement of
goodwill by removing Step 2 of the goodwill impairment test.1
Key Facts and Impacts
An entity that does not elect the private company alternative would perform its
annual or interim goodwill impairment test by comparing the fair value of a
reporting unit to its carrying amount.
If the reporting unit’s carrying amount exceeds its fair value, the difference, up
to the carrying amount of the goodwill allocated to the reporting unit, would be
recognized as an impairment of goodwill.
Current Requirements
Proposed ASU
Assess qualitative factors to
determine whether goodwill
impairment exists
No change
Step 1 of the goodwill impairment
test identifies potential impairment
Identifying and measuring impairment
would take place in a single
quantitative step
Proposed Transition and Effective
Date ............................................ 2
Step 2 of the goodwill impairment
test measures the impairment
Eliminated
Next Steps ..................................... 2
Perform a qualitative assessment to
identify impairment for reporting units
with zero or negative carrying
amounts. When impairment is
identified, perform Step 2 to measure
the impairment.
No separate qualitative assessment
for reporting units with zero or
negative carrying amounts. Entities
must disclose the existence of these
reporting units and the amount of
goodwill allocated to them.
Contents
Example ......................................... 2
Based on feedback from users, the FASB concluded that removing Step 2 of the
goodwill impairment test would benefit entities through cost reductions and
increased efficiency, while maintaining the usefulness of information provided to
users of financial statements.
1
FASB Proposed Accounting Standards Update, Simplifying the Accounting for Goodwill Impairment,
May 12, 2016, available at www.fasb.org.
©2001–2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of
independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity.
Defining Issues® — May 2016, No. 16-18
Example: How to Apply the Proposed ASU
Company X is performing a goodwill impairment test for a reporting unit at
December 31, 20X6. The reporting unit has the following assets and
liabilities.
Convergence
The proposed ASU would increase
consistency with some aspects of
the equivalent international
standard, which requires a one-step
quantitative impairment test.2
However, significant differences
would remain, because (1) IFRS
uses two measurement bases: the
higher of fair value less costs of
disposal and value in use, and (2)
the unit of account is the cashgenerating unit (or group thereof).

Net assets (excluding goodwill and deferred income taxes): $60; tax basis
is $35

Goodwill: $40

Net deferred tax liabilities: $10

Total carrying amount: $90 ($60 + $40 - $10)2
Using market participant assumptions, Company X concludes that fair value
should be based on selling the reporting unit in a nontaxable transaction.
The carrying amount of the reporting unit ($90) exceeds the fair value of the
reporting unit ($80). Company X does not perform Step 2 of the goodwill
impairment test. Instead, it simply records a goodwill impairment loss of $10,
and reduces the carrying amount of goodwill to $30 ($40 - $10).
Proposed Transition and Effective Date
Entities would apply the proposed amendments on a prospective basis. The
Board will determine the effective date and consider whether to permit early
adoption after it receives stakeholder feedback.
Next Steps
Comments on the proposed ASU are due by July 11, 2016.
The FASB’s project to simplify the subsequent measurement of goodwill
includes a second phase in which the Board will address additional concepts,
including the amortization of goodwill by public companies.
Contact us: This is a publication of KPMG’s Department of Professional Practice 212-909-5600
Contributing authors: Julie R. Santoro and Casey C. Miles
Earlier editions are available at: kpmg.com/us/frn
Legal–The descriptive and summary statements in this newsletter are not intended to be a substitute
for the potential requirements of the proposed standard or any other potential or applicable
requirements of the accounting literature or SEC regulations. Companies applying U.S. GAAP or filing
with the SEC should apply the texts of the relevant laws, regulations, and accounting requirements,
consider their particular circumstances, and consult their accounting and legal advisors. Defining
Issues® is a registered trademark of KPMG LLP.
2
2
IAS 36, Impairment of Assets.
©2001–2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of
independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity.