Intangibles - Goodwill and Other

Financial reporting developments
A comprehensive guide
Intangibles —
goodwill and
other
Revised May 2022
To our clients and other friends
Accounting for goodwill and intangible assets can involve various financial reporting issues, including
determining the useful life and unit of accounting for intangible assets, identifying reporting units and
performing impairment evaluations.
We are providing this Financial reporting developments (FRD) publication to help you identify and
understand the issues related to the accounting for goodwill and other intangible assets. This publication
includes excerpts from and references to the Accounting Standards Codification (ASC or Codification)
issued by the Financial Accounting Standards Board (FASB or Board), interpretive guidance and examples.
We are available to answer your questions and discuss any concerns you may have.
May 2022
Contents
1 General provisions ..................................................................................................... 1

1.1 Scope (updated July 2021) .................................................................................................... 1
1.1.1 A holder’s accounting for cryptocurrencies ................................................................... 4
1.1.2 Goodwill accounting alternatives for private companies and not-for-profit
entities (updated July 2021) ........................................................................................ 6
1.1.3 Not-for-profit entities and private companies that have not elected the
goodwill amortization accounting alternative (updated July 2021) ................................. 6
1.1.4 Accounting by producers or distributors of films ............................................................ 6
1.2 Initial recognition and measurement of intangible assets.......................................................... 6
1.3 Internally developed intangible assets ..................................................................................... 8
2 Subsequent accounting for intangible assets other than goodwill .................................. 9
2.1 Determining the useful lives of intangible assets ...................................................................... 9
2.1.1 Legal rights ............................................................................................................... 12
2.1.2 Renewal and extension rights ..................................................................................... 12
2.1.2.1 Effect of using an income valuation approach...................................................... 12
2.1.3 Considerations in determining the useful life of a customer relationship
intangible asset ......................................................................................................... 13
2.1.4 Considerations in determining the useful life of a reacquired right intangible asset ............ 14
2.1.5 SEC observations on determining the useful life of an intangible asset .......................... 14
2.2 Intangible assets with finite lives ........................................................................................... 15
2.2.1 Amortization method ................................................................................................. 15
2.2.1.1 SEC observations on determining the amortization method of a
finite-lived intangible asset ................................................................................ 16
2.2.1.1.1 Back-end loaded patterns of consumption ........................................... 16
2.2.2 Residual value ........................................................................................................... 17
2.2.3 Periodic evaluation of the estimated useful life ............................................................ 17
2.2.4 Impairment of finite-lived intangible assets.................................................................. 18
2.3 Intangible assets with indefinite lives..................................................................................... 19
2.3.1 Acquired research and development assets ................................................................. 20
2.3.2 Impairment of indefinite-lived intangible assets ........................................................... 22
2.3.2.1 Optional qualitative impairment assessment for indefinite-lived
intangible assets ............................................................................................... 23
2.3.2.1.1 Five-step approach for applying the qualitative assessment
to test indefinite-lived intangibles for impairment ................................ 25
2.3.2.1.1.1 Determine the starting point ...................................................... 26
2.3.2.1.1.2 Identify the most relevant drivers of fair value ............................ 26
2.3.2.1.1.3 Identify events and circumstances .............................................. 27
2.3.2.1.1.4 Weigh the identified factors ....................................................... 27
2.3.2.1.1.5 Conclude .................................................................................. 28
2.3.2.1.1.6 Additional considerations for performing a
qualitative assessment for an IPR&D asset .................................. 29
2.3.2.2 Order of impairment testing (updated July 2021) ............................................... 30
2.3.2.3 Impairment testing of recently acquired indefinite-lived intangible assets ............. 30
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2.3.2.4 Impairment considerations for acquired outlicensed arrangements

that are classified as IPR&D assets..................................................................... 31
2.3.3 Unit of accounting...................................................................................................... 31
2.3.3.1 Allocating an impairment loss to an indefinite-lived intangible asset
when removing the asset from a single accounting unit ...................................... 36
2.4 Useful life of an acquired intangible asset that will not be fully utilized (defensive
intangible asset) ................................................................................................................. 37
2.5 Transfer or sale of intangible assets (updated May 2022) ...................................................... 38
3 Subsequent accounting for goodwill (before the adoption of ASU 2017-04) ................. 40
3.1 Measurement and recognition of goodwill impairment ........................................................... 40
3.1.1 Optional qualitative assessment.................................................................................. 44
3.1.1.1 Key considerations ............................................................................................. 46
3.1.1.1.1 Weighing evidence ............................................................................ 46
3.1.1.1.2 Meaning of ‘significant’ ...................................................................... 46
3.1.1.1.3 List of events and circumstances ........................................................ 47
3.1.1.2 Applying the qualitative assessment ................................................................... 47
3.1.1.2.1 Determine the starting point .............................................................. 48
3.1.1.2.1.1 Look at the excess fair value ...................................................... 48
3.1.1.2.1.2 Consider the market.................................................................. 48
3.1.1.2.1.3 Review changes to carrying amount ........................................... 50
3.1.1.2.2 Identify the most relevant drivers of fair value .................................... 50
3.1.1.2.3 Identify events and circumstances ...................................................... 51
3.1.1.2.3.1 Cumulative analysis .................................................................. 52
3.1.1.2.4 Weigh the identified factors ............................................................... 53
3.1.1.2.4.1 Inverse relationship to level of documentation............................. 54
3.1.1.2.4.2 Sensitivity analyses................................................................... 55
3.1.1.2.5 Conclude .......................................................................................... 57
3.1.2 Reporting units with zero or negative carrying amounts ............................................... 58
3.1.3 Consideration of deferred income taxes in determining the carrying
amount of a reporting unit.......................................................................................... 58
3.2 Goodwill impairment test is incomplete ................................................................................. 59
3.3 Fair value measurements of a reporting unit (updated July 2021) .......................................... 60
3.3.1 Market capitalization as a corroboration of fair value (updated July 2021).................... 61
3.3.1.1 Effect of qualitative assessment on performing a market
capitalization reconciliation (updated July 2021) ............................................... 62
3.3.2 Effect of deferred taxes on fair value assumptions ....................................................... 63
3.3.3 Level of future funding for pension plans considerations .............................................. 64
3.3.4 Other impairment considerations ................................................................................ 64
3.4 Goodwill impairment test of a reporting unit that includes all or part of a foreign entity ........... 64
3.4.1 Consideration of CTA amounts in the carrying amount of a reporting unit ..................... 66
3.5 Frequency of goodwill impairment tests ................................................................................ 66
3.5.1 Changing the goodwill assessment date ...................................................................... 67
3.6 Interim impairment test........................................................................................................ 68
3.6.1 Market capitalization as an impairment indicator ......................................................... 69
3.7 Goodwill impairment test in conjunction with another asset (or asset group) ........................... 70
3.7.1 Acquired entity represents only a part of the reporting unit.......................................... 71
3.8 Identification of reporting units............................................................................................. 71
3.8.1 The component constitutes a business or a nonprofit activity ....................................... 73
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3.8.2 Discrete financial information ..................................................................................... 73

3.8.3 Reviewed by segment management ............................................................................ 74
3.8.4 Similar economic characteristics................................................................................. 74
3.8.5 Additional observations .............................................................................................. 76
3.9 Assigning assets acquired and liabilities assumed to reporting units........................................ 78
3.9.1 Determining the manner in which the carrying amount of a reporting unit
is derived (equity versus enterprise) ........................................................................... 79
3.9.2 Assignment of a contingent consideration asset or liability ........................................... 80
3.10 Assets or liabilities used in multiple reporting units ............................................................... 80
3.10.1 Assets or liabilities accounted for at the corporate level ............................................... 81
3.11 Assigning goodwill to reporting units ................................................................................... 83
3.11.1 Entity-level goodwill ................................................................................................... 86
3.11.2 Assignment of goodwill to reporting units for a mining entity ....................................... 86
3.11.3 Delay in assignment of goodwill .................................................................................. 86
3.11.4 Impairment testing of recently acquired goodwill ......................................................... 87
3.11.4.1 Impairment testing in a subsequent period .......................................................... 87
3.11.5 Effect on segment disclosure ...................................................................................... 88
3.12 Reorganization of a company’s reporting structure .............................................................. 89
3.13 Goodwill impairment testing by a subsidiary for standalone reporting .................................... 90
3.14 Disposal of all or a portion of a reporting unit ....................................................................... 91
3.14.1 Change in parent’s ownership interest results in loss of control .................................... 93
3.14.2 Assigning goodwill to a business transferred in a common control transaction .............. 93
3.14.3 Assignment of goodwill in a spin-off ............................................................................ 94
3.14.3.1 Accounting by parent ......................................................................................... 94
3.14.3.2 Accounting by spinnee ....................................................................................... 94
3.15 Goodwill impairment testing when a noncontrolling interest exists ........................................ 95
3.15.1 Goodwill generated before the effective date of the guidance in ASC 810 ..................... 97
3.15.2 Reallocation of goodwill upon changes in a parent’s ownership interest ........................ 97
3.16 Tax effects of goodwill impairments..................................................................................... 98
3.17 Goodwill related to equity method investments .................................................................... 98
3.18 Goodwill resulting from a subsidiary’s acquisition of an entity................................................ 99
3.19 Deferred income taxes ........................................................................................................ 99
3A Subsequent accounting for goodwill (after the adoption of ASU 2017-04) ................. 100
3A.1 Measurement and recognition of goodwill impairment ........................................................ 100
3A.1.1 Optional qualitative assessment................................................................................ 103
3A.1.1.1 Key considerations ........................................................................................... 104
3A.1.1.1.1 Weighing evidence .......................................................................... 105
3A.1.1.1.2 Meaning of ‘significant’ .................................................................... 105
3A.1.1.1.3 List of events and circumstances...................................................... 105
3A.1.1.2 Applying the qualitative assessment ................................................................. 106
3A.1.1.2.1 Determine the starting point ............................................................ 106
3A.1.1.2.1.1 Look at the excess fair value .................................................... 106
3A.1.1.2.1.2 Consider the market................................................................ 107
3A.1.1.2.1.3 Review changes to carrying amount ......................................... 108
3A.1.1.2.2 Identify the most relevant drivers of fair value .................................. 108
3A.1.1.2.3 Identify events and circumstances .................................................... 110
3A.1.1.2.3.1 Cumulative analysis ................................................................ 110
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3A.1.1.2.4 Weigh the identified factors ............................................................. 111

3A.1.1.2.4.1 Inverse relationship to level of documentation........................... 112
3A.1.1.2.4.2 Sensitivity analyses................................................................. 113
3A.1.1.2.5 Conclude ........................................................................................ 115
3A.1.2 Reporting units with zero or negative carrying amounts ............................................. 116
3A.1.3 Consideration of deferred income taxes in determining the carrying
amount of a reporting unit........................................................................................ 116
3A.2 Goodwill impairment test is incomplete .............................................................................. 117
3A.3 Fair value measurements of a reporting unit (updated July 2021)....................................... 117
3A.3.1 Market capitalization as a corroboration of fair value (updated July 2021).................. 118
3A.3.1.1 Effect of qualitative assessment on performing a market
capitalization reconciliation (updated July 2021) ............................................. 119
3A.3.2 Effect of deferred taxes on fair value assumptions (updated July 2021) ..................... 120
3A.4 Goodwill impairment test of a reporting unit that includes all or part of a foreign entity ........ 124
3A.4.1 Consideration of CTA amounts in the carrying amount of a reporting unit ................... 125
3A.5 Frequency of goodwill impairment tests ............................................................................. 126
3A.5.1 Changing the goodwill assessment date .................................................................... 126
3A.6 Interim impairment test .................................................................................................... 127
3A.6.1 Market capitalization as an impairment indicator ....................................................... 128
3A.7 Goodwill impairment test in conjunction with another asset (or asset group) ........................ 129
3A.7.1 Acquired entity represents only a part of the reporting unit........................................ 130
3A.8 Identification of reporting units ......................................................................................... 130
3A.8.1 The component constitutes a business or a nonprofit activity ..................................... 132
3A.8.2 Discrete financial information ................................................................................... 132
3A.8.3 Reviewed by segment management .......................................................................... 133
3A.8.4 Similar economic characteristics............................................................................... 133
3A.8.5 Additional observations ............................................................................................ 135
3A.9 Assigning assets acquired and liabilities assumed to reporting units .................................... 138
3A.9.1 Determining the manner in which the carrying amount of a reporting unit
is derived (equity versus enterprise) ......................................................................... 139
3A.9.2 Assignment of a contingent consideration asset or liability ......................................... 139
3A.10 Assets or liabilities used in multiple reporting units ............................................................. 139
3A.10.1 Assets or liabilities accounted for at the corporate level ............................................. 140
3A.11 Assigning goodwill to reporting units ................................................................................. 143
3A.11.1 Entity-level goodwill ................................................................................................. 145
3A.11.2 Assignment of goodwill to reporting units for a mining entity ..................................... 145
3A.11.3 Delay in assignment of goodwill ................................................................................ 145
3A.11.4 Impairment testing of recently acquired goodwill ....................................................... 146
3A.11.4.1 Impairment testing in a subsequent period ........................................................ 146
3A.11.5 Effect on segment disclosure .................................................................................... 148
3A.12 Reorganization of a company’s reporting structure ............................................................ 148
3A.13 Goodwill impairment testing by a subsidiary for standalone reporting .................................. 149
3A.14 Disposal of all or a portion of a reporting unit ..................................................................... 150
3A.14.1 Change in parent’s ownership interest results in loss of control .................................. 152
3A.14.2 Assigning goodwill to a business transferred in a common control transaction ............ 152
3A.14.3 Assignment of goodwill in a spin-off .......................................................................... 153
3A.14.3.1 Accounting by parent ....................................................................................... 153
3A.14.3.2 Accounting by spinnee ..................................................................................... 153
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3A.15 Goodwill impairment testing when a noncontrolling interest exists ...................................... 154
3A.15.1 Goodwill generated before the effective date of the guidance in ASC 810 ................... 156
3A.15.2 Reallocation of goodwill upon changes in a parent’s ownership interest ...................... 156
3A.16 Tax effects of goodwill impairments................................................................................... 157
3A.17 Goodwill related to equity method investments .................................................................. 157
3A.18 Goodwill resulting from a subsidiary’s acquisition of an entity.............................................. 158
3A.19 Deferred income taxes ...................................................................................................... 158
4 Financial statement presentation and disclosure requirements ................................. 161
4.1 Financial statement presentation ........................................................................................ 161
4.1.1 Balance sheet presentation ...................................................................................... 162
4.1.2 Income statement presentation ................................................................................ 162
4.1.3 Additional presentation considerations for private companies and not-
for-profit entities ..................................................................................................... 162
4.2 General disclosure requirements......................................................................................... 163
4.2.1 Goodwill .................................................................................................................. 163
4.2.1.1 Additional disclosure considerations for private companies and not-
for-profit entities ............................................................................................ 164
4.2.2 General intangible assets other than goodwill ............................................................ 164
4.2.2.1 Disclosures in period of acquisition ................................................................... 164
4.2.2.2 Recurring disclosures when statement of financial position is presented ............ 165
4.3 Disclosures surrounding impairment ................................................................................... 165
4.3.1 Impairment of goodwill............................................................................................. 165
4.3.1.1 SEC observations on goodwill impairment analysis and disclosures .................... 166
4.3.2 Impairment of intangible assets other than goodwill................................................... 168
4.3.2.1 SEC observations on intangible asset impairment analysis and disclosures ......... 168
5 Effective date, transition and transition disclosures ................................................. 169
5.1 Effective date for ASU 2017-04 ......................................................................................... 169
A Accounting alternatives for subsequent accounting for goodwill
(updated July 2021) ............................................................................................... A-1
A.1 Overview and scope ............................................................................................................A-1
A.1.1 Definition of a private company, a PBE and a not-for-profit entity ................................A-4
A.2 Goodwill amortization accounting alternative (updated July 2021)........................................A-6
A.2.1 Determining useful life ..............................................................................................A-7
A.2.2 Simplified impairment test.........................................................................................A-7
A.2.2.1 Level of impairment test....................................................................................A-9
A.2.2.2 Evaluating triggering events ..............................................................................A-9
A.2.2.3 Qualitative assessment....................................................................................A-10
A.2.2.4 Calculation of impairment loss .........................................................................A-11
A.2.2.4.1 Allocating an impairment loss to amortizable units of goodwill ........... A-12
A.2.2.5 Carrying amount of entity or reporting unit is zero or negative .........................A-14
A.2.2.6 Goodwill impairment test in conjunction with another asset (or asset group) .....A-14
A.2.3 Other considerations...............................................................................................A-15
A.2.3.1 Disposal of a portion of an entity or a reporting unit .........................................A-15
A.2.3.2 Equity method goodwill ...................................................................................A-15
A.2.3.3 Income taxes ..................................................................................................A-16
A.2.4 Transition, presentation and disclosure ....................................................................A-16
A.2.4.1 Transition requirements ..................................................................................A-16
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A.2.4.2 Financial statement presentation .....................................................................A-18

A.2.4.3 Disclosure requirements ..................................................................................A-19
A.3 Goodwill triggering event evaluation accounting alternative (added July 2021)....................A-20
A.3.1 Determining reporting date (added July 2021) .........................................................A-21
A.3.2 Other considerations (added July 2021) ..................................................................A-22
A.3.3 Effective date, transition and disclosure (added July 2021) ......................................A-23
B Examples — applying the qualitative impairment assessments for goodwill
and indefinite-lived intangible assets ........................................................................ B-1
B.1 Goodwill ............................................................................................................................. B-1
B.1.1 Background information............................................................................................ B-1
B.1.2 Determine the starting point...................................................................................... B-2
B.1.3 Identify the most relevant drivers of fair value ............................................................ B-3
B.1.4 Identify events and circumstances ............................................................................. B-4
B.1.5 Weigh the identified events and circumstances ........................................................... B-5
B.1.6 Conclude .................................................................................................................. B-6
B.1.6.1 Conclude — RU 1 (women’s sportswear) ............................................................. B-6
B.1.6.2 Conclude — RU 3 (men’s sportswear).................................................................. B-6
B.2 Indefinite-lived intangible assets .......................................................................................... B-7
B.2.1 Background information............................................................................................ B-7
B.2.2 Determine the starting point...................................................................................... B-8
B.2.3 Identify the most relevant drivers of fair value ............................................................ B-9
B.2.4 Identify events and circumstances ............................................................................. B-9
B.2.5 Weigh the identified events and circumstances ......................................................... B-11
B.2.6 Conclude ................................................................................................................ B-12
B.2.6.1 Conclude — ABC Co. trade name ......................................................................B-12
B.2.6.2 Conclude — FCC license....................................................................................B-12
C Examples — accounting for intangible assets other than goodwill ............................... C-1
D Summary of important changes ............................................................................... D-1
E Differences between US GAAP and IFRS .................................................................. E-1
F Abbreviations used in this publication ...................................................................... F-1
G Glossary ................................................................................................................. G-1
H Index of ASC references in this publication ............................................................... H-1
Financial reporting developments Intangibles — goodwill and other | vi

Contents
Notice to readers:
This publication includes excerpts from and references to the Financial Accounting Standards Board
(FASB or the Board) Accounting Standards Codification (the Codification or ASC). The Codification
uses a hierarchy that includes Topics, Subtopics, Sections and Paragraphs. Each Topic includes an
Overall Subtopic that generally includes pervasive guidance for the Topic and additional Subtopics, as
needed, with incremental or unique guidance. Each Subtopic includes Sections that in turn include
numbered Paragraphs. Thus, a Codification reference includes the Topic (XXX), Subtopic (YY),
Section (ZZ) and Paragraph (PP).
Throughout this publication references to guidance in the Codification are shown using these reference
numbers. References are also made to certain pre-Codification standards (and specific sections or
paragraphs of pre-Codification standards) in situations in which the content being discussed is excluded
from the Codification.
This publication has been carefully prepared, but it necessarily contains information in summary form
and is therefore intended for general guidance only; it is not intended to be a substitute for detailed
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Financial reporting developments Intangibles — goodwill and other | vii

1 General provisions
1.1 Scope (updated July 2021)

Excerpt from Accounting Standards Codification
Intangibles — Goodwill and Other — Overall
Overview and Background
350-10-05-1
The Intangibles — Goodwill and Other Topic provides guidance on financial accounting and reporting
related to goodwill and other intangible assets, including the subsequent measurement of goodwill and
intangible assets. It does not include guidance on the accounting at acquisition for goodwill and intangible
assets acquired in a business combination or in an acquisition by a not-for-profit entity.
Scope and Scope Exceptions

350-10-15-2
The guidance in the Intangibles — Goodwill and Other Topic applies to all entities, including business
entities, mutual entities, and not-for-profit entities (NFPs).
Intangibles — Goodwill and Other — Goodwill

350-20-05-1
This Subtopic addresses financial accounting and reporting for goodwill subsequent to its acquisition
and for the cost of internally developing goodwill.
350-20-05-2
Subtopic 805-30 provides guidance on recognition and initial measurement of goodwill acquired in a
business combination. Subtopic 958-805 provides guidance on recognition and initial measurement of
goodwill acquired in an acquisition by a not-for-profit entity.
350-20-05-4
The guidance in this Subtopic is presented in the following two Subsections:
a. General
b. Accounting Alternatives.
350-20-05-4A
Costs of developing, maintaining, or restoring internally generated goodwill should not be capitalized.
For entities that do not elect the accounting alternative for amortizing goodwill included in the
guidance in the Subsections outlined in paragraph 350-20-05-5A, goodwill that is recognized under
the business combination guidance in Topic 805 and Subtopic 958-805 should not be amortized.
Instead, it should be tested for impairment at least annually in accordance with paragraphs 350-20-35-28
through 35-32. If the accounting alternative for a goodwill impairment triggering event evaluation is
elected, a goodwill impairment triggering event shall be evaluated in accordance with paragraphs
350-20-35-83 through 35-86.
Financial reporting developments Intangibles — goodwill and other | 1

350-20-05-4B
This Subtopic also includes guidance on the following:
a. How an entity should derecognize goodwill when it disposes of all or a portion of a reporting unit
b. How goodwill should be presented in the balance sheet
c. How impairment losses should be presented in the income statement
d. What disclosures about goodwill and related impairment considerations should be made in the
notes to the financial statements.

350-20-15-2
The guidance in this Subtopic applies to the following transactions and activities:
a. Goodwill that an entity recognizes in accordance with Subtopic 805-30 or Subtopic 958-805
after it has been initially recognized and measured
b. The costs of internally developing goodwill and other unidentifiable intangible assets with
indeterminate lives
c. Subparagraph not used
d. Amounts recognized as goodwill in applying the equity method of accounting and to the excess
reorganization value recognized by entities that adopt fresh-start reporting in accordance with
Topic 852.
e. Subparagraph not used
350-20-15-3
Although goodwill is an intangible asset, the term intangible asset is used in this Subtopic to refer to an
intangible asset other than goodwill.
Recognition
350-20-25-2
The excess reorganization value recognized by entities that adopt fresh-start reporting in accordance
with Topic 852 shall be reported as goodwill and accounted for in the same manner as goodwill.
Intangibles — Goodwill and Other — General Intangibles Other than Goodwill

350-30-05-1
This Subtopic addresses financial accounting and reporting for intangible assets (other than goodwill)
acquired individually or with a group of other assets and for the cost of developing, maintaining, or
restoring internally generated intangible assets. However, it does not discuss the recognition and
initial measurement of intangible assets acquired in a business combination or in an acquisition by a
not-for-profit entity. This Subtopic also addresses financial accounting and reporting for intangible
assets after their acquisition, including intangible assets acquired in a business combination or an
acquisition by a not-for-profit entity.
350-30-05-3
Intangible assets acquired individually or with a group of other assets should be recognized as assets in
accordance with Section 350-30-25. Costs of developing internally generated intangible assets should be
accounted for in accordance with paragraph 350-30-25-3.

350-30-05-4
The accounting for an intangible asset after acquisition depends on its useful life. If that life is
indefinite, the intangible asset should not be amortized but should be tested for impairment at least
annually in accordance with paragraphs 350-30-35-15 through 35-20. If that life is finite, the
intangible asset should be amortized in accordance with paragraphs 350-30-35-6 through 35-13 and
tested for impairment under the guidance for long-lived assets in Subtopic 360-10.
350-30-05-5
This Subtopic also includes guidance on the presentation of intangible assets in the balance sheet,
presentation of amortization expense and impairment losses for intangible assets in the income
statement, and disclosure of information on intangible assets in the notes to financial statements.

350-30-15-3
The guidance in this Subtopic applies to the following:
a. Intangible assets acquired individually or with a group of other assets (but not the recognition and
initial measurement of those acquired in a business combination or an acquisition by a not-for-
profit entity)
b. Intangible assets (other than goodwill) that an entity recognizes in accordance with Subtopic 805-20
or 958-805 after they have been initially recognized and measured, except for those identified in
the following paragraph
d. Costs of internally developing identifiable intangible assets that an entity recognizes as assets.
The disclosure requirements of paragraphs 350-30-50-1 through 50-3 also apply to capitalized
software costs.
350-30-15-4
The guidance in this Subtopic does not apply to the following:
a. Subparagraph not used
b. Subparagraph superseded by Accounting Standards Update No. 2010-07
c. Except for certain disclosure requirements as noted in the preceding paragraph, capitalized
software costs
d. Intangible assets recognized for acquired insurance contracts under the requirements of
Subtopic 944-805.
Pending Content:
Transition Date: (P) December 16, 2022; (N) December 16, 2024 | Transition Guidance: 944-40-65-2
350-30-15-4
The guidance in this Subtopic does not apply to the following:
a. Subparagraph not used
b. Subparagraph superseded by Accounting Standards Update No. 2010-07

c. Except for certain disclosure requirements as noted in paragraph 350-30-15-3, capitalized

software costs
d. Except for disclosures required by paragraph 944-805-50-1 (however, an insurance entity need
not duplicate disclosures that also are required by paragraphs 944-30-50-2A through 50-2B),
intangible assets recognized for acquired insurance contracts under the requirements of
Subtopic 944-805.
The initial recognition and measurement provisions of ASC 350-30 apply to intangible assets acquired
individually or as part of a group that does not constitute a business, as defined in ASC 805. ASC 805
addresses the recognition and initial measurement of intangible assets acquired in a business combination.
Likewise, ASC 958 addresses the recognition and initial measurement of intangible assets acquired in an
acquisition of a business or nonprofit activity by a not-for-profit entity. ASC 350 does not apply to
intangible assets recognized for acquired insurance contracts under the requirements of ASC 944.
ASC 350 addresses the subsequent accounting for goodwill and intangible assets acquired either individually,
with a group of other assets, or in a business combination. Goodwill embedded in the difference between
the cost of an equity method investment and the investor’s interest in the underlying net assets of the
investee (such goodwill is referred to as “equity method goodwill”) must not be amortized or tested for
impairment in accordance with ASC 350-20. Instead, equity method goodwill and the associated equity
method investments are evaluated for impairment in accordance with ASC 323-10-35-32.
ASC 350 addresses the impairment of goodwill and intangible assets that are not amortized; while
ASC 360-10 addresses the impairment of intangible assets that are amortized.
ASC 350 also applies to the excess reorganization value recognized by companies that adopt fresh-start
reporting in accordance with ASC 852-10. The FASB believes that excess reorganization value is similar
to goodwill and, therefore, excess reorganization value should be reported as goodwill and accounted for
under ASC 350-20.
For further information on ASC 805, ASC 360-10 and ASC 852, see our FRDs, Business combinations;
Impairment or disposal of long-lived assets; and Bankruptcies, liquidations and quasi-reorganizations,
respectively.
FASB developments
The FASB has a project on its agenda to simplify the subsequent accounting for goodwill and the
accounting for certain identifiable intangible assets for all entities. In December 2020, the Board
tentatively decided to require entities to amortize goodwill on a straight-line basis over a 10-year
default period, unless another period is justified. The FASB staff is performing research on the criteria
that would justify deviation from the default period, and the Board will address this topic at a future
meeting. Readers should monitor developments in this area.
1.1.1 A holder’s accounting for cryptocurrencies

The proliferation of cryptocurrencies and the lack of US GAAP guidance that specifically addresses
cryptocurrencies have raised questions about how holders of these assets should account for them. In
this context, we use the term cryptocurrency to refer to digital assets that serve purely as a medium of
exchange (e.g., Bitcoin).

We generally believe that cryptocurrencies meet the definition of indefinite-lived intangible assets under
ASC 350, and holders should account for them at historical cost less impairment. However, entities that
are subject to specialized industry guidance may account for cryptocurrencies differently. For example,
investment companies as defined under ASC 946 account for their cryptocurrency investments as “other
investments” and subsequently measure these assets at fair value through earnings.
We recognize that cryptocurrencies have some characteristics that are not typical of intangible assets.
For example, unlike typical intangible assets, they may be traded on exchanges, and they must be
exchanged for an entity to realize their value (i.e., they have little or no intrinsic value). Also, unlike other
intangible assets, units of a particular cryptocurrency are fungible. Some stakeholders have raised
concerns about the application of the intangible asset guidance in ASC 350 to cryptocurrencies, saying it
does not provide relevant information to financial statement users because it does not appropriately
reflect the economics associated with cryptocurrencies. However, in the absence of standard setting that
specifically addresses the accounting for cryptocurrencies, entities that invest in cryptocurrencies must
apply existing accounting standards.
The following table provides our analysis of why cryptocurrencies meet the definition of intangible assets
rather than other types of assets:
US GAAP definitions Classification conclusion
Intangible assets1 are assets2 (not including Met: Cryptocurrencies are nonfinancial
Intangible asset
financial assets) that lack physical substance. assets that lack physical substance.
Cash includes currency, demand deposits Not met: Cryptocurrencies generally are
with financial institutions and other not accepted as legal tender and are not
accounts that have the general backed by sovereign governments.
Cash and cash characteristics of demand deposits. Cryptocurrencies do not have maturities and
equivalents Cash equivalents are short-term, highly liquid have experienced significant price volatility.
investments that are readily convertible to
known amounts of cash and represent
insignificant risk of changes in value.
A financial instrument is cash, an ownership Not met: Cryptocurrencies are not cash or
interest in an entity or a contract that an ownership interest in an entity, and they
Financial
imposes an obligation to deliver or a right to do not represent a contractual obligation to
instrument
receive cash or another financial instrument. deliver or a right to receive cash or another
financial instrument.
Inventory is tangible property held for sale in Not met: Cryptocurrencies are not tangible
the ordinary course of business, in process of property because they lack physical substance.
Inventory
production for sale or to be consumed in the
production of goods or services.
Guidance on the initial recognition and measurement of intangible assets and subsequent accounting for
intangible assets other than goodwill is included in section 1.2 and chapter 2, respectively. Additionally,
see our Technical Line, A holder’s accounting for cryptocurrencies, for additional guidance on
accounting for cryptocurrencies.
1
ASC 350-30-25-4 states, “Intangible assets that are acquired individually or with a group of assets in a transaction other than a
business combination or an acquisition by a not-for-profit entity may meet asset recognition criteria in” CON 5. One of the four
criteria in CON 5 is that the item meets the definition of an element of the financial statements (e.g., an asset). The definition of
such elements is included in CON 8.4.
2
Paragraph E16 of CON 8.4 defines assets as “a present right of an entity to an economic benefit.” An entity that exchanges
assets for cryptocurrencies, or receives cryptocurrencies as payment, would generally expect economic benefit upon transferring
or selling the cryptocurrencies. Therefore, cryptocurrencies would generally meet the definition of an asset.

1.1.2 Goodwill accounting alternatives for private companies and not-for-profit

entities (updated July 2021)
ASC 350 provides an accounting alternative that allows private companies3 and not-for-profit (NFP)
entities to amortize goodwill acquired in a business combination and to use a simplified one-step
impairment test.
With Accounting Standards Update (ASU) 2021-03, the FASB provided a second accounting alternative
that allows private companies and NFPs to assess whether triggering events for goodwill impairment have
occurred only as of the end of their annual reporting period, or interim reporting period if they report
more frequently.
Refer to Appendix A for guidance on applying what we refer to as the goodwill amortization accounting
alternative and the goodwill triggering event evaluation accounting alternative, respectively.
1.1.3 Not-for-profit entities and private companies that have not elected the
goodwill amortization accounting alternative (updated July 2021)
Not-for-profit entities within the scope of ASC 958 and private companies must apply the guidance on
subsequent accounting for goodwill and indefinite-lived intangible assets in ASC 350. Therefore, goodwill
and indefinite-lived intangible assets of not-for-profit entities and private companies that have not
elected the goodwill amortization accounting alternative discussed above and in Appendix A are subject
to an impairment test at least annually.
1.1.4 Accounting by producers or distributors of films

Movies, television programs and other assets in the scope of ASC 926-20 will continue to be accounted
for in accordance with that guidance as opposed to ASC 350. ASC 926-20 applies to films, which are
defined as feature films, television specials, television series or similar products (including animated films
and television programming) that are sold, licensed or exhibited, whether produced on film, videotape,
digital or other video recording formats. ASC 350-30 is not applicable to these intangible assets, and
ASC 926-20 does not contemplate the concept of an indefinite useful life as set forth in ASC 350-30.
Therefore, these assets should continue to be amortized under ASC 926-20 (e.g., using the individual-
film-forecast-computation method).
1.2 Initial recognition and measurement of intangible assets

350-10-15-3
The guidance in the Intangibles — Goodwill and Other Topic does not apply to the following transactions
and activities:
a. The accounting at acquisition for goodwill acquired in a business combination (for guidance see
Subtopic 805-30)
b. Subparagraph not used
c. The accounting at acquisition for goodwill acquired in an acquisition by a not-for-profit entity
(for guidance see Subtopic 958-805)
3
Refer to Appendix G for the definition of a private company from the ASC Master Glossary.

d. The accounting at acquisition for intangible assets (other than goodwill) acquired in a business
combination or in an acquisition by a not-for-profit entity (for guidance see Subtopics 805-20
and 958-805).
Recognition
350-30-25-1
An intangible asset that is acquired either individually or with a group of other assets shall be recognized.
350-30-25-2
As indicated in paragraph 805-50-30-3, the cost of a group of assets acquired in a transaction other
than a business combination or an acquisition by a not-for-profit entity shall be allocated to the
individual assets acquired based on their relative fair values and shall not give rise to goodwill.
350-30-25-4
Intangible assets that are acquired individually or with a group of assets in a transaction other than a
business combination or an acquisition by a not-for-profit entity may meet asset recognition criteria in
FASB Concepts Statement No. 5, Recognition and Measurement in Financial Statements of Business
Enterprises, even though they do not meet either the contractual-legal criterion or the separability
criterion (for example, specially-trained employees or a unique manufacturing process related to an
acquired manufacturing plant). Such transactions commonly are bargained exchange transactions that
are conducted at arm’s length, which provides reliable evidence about the existence and fair value of
those assets. Thus, those assets shall be recognized as intangible assets.
350-30-25-5
A defensive intangible asset, other than an intangible asset that is used in research and development
activities, shall be accounted for as a separate unit of accounting. Such a defensive intangible asset
shall not be included as part of the cost of an entity's existing intangible asset(s). For implementation
guidance on determining whether an intangible asset is a defensive intangible asset, see paragraph
350-30-55-1. For guidance on intangible assets acquired in a business combination or in an acquisition
by a not-for-profit entity that are used in research and development activities (regardless of whether
they have an alternative future use), see paragraph 350-30-35-17A. For guidance on intangibles that
are purchased from others for a particular research and development project and that have no alternative
future uses (in other research and development projects or otherwise), see Subtopic 730-10.
Initial Measurement
350-30-30-1
An intangible asset that is acquired either individually or with a group of other assets (but not those
acquired in a business combination) shall be initially measured based on the guidance included in
paragraphs 805-50-15-3 and 805-50-30-1 through 30-4.
Intangible assets acquired either individually or with a group of other assets outside of a business combination
are initially recognized and measured based on their cost to the acquiring entity. The cost4 of a group of
assets that does not meet the definition of a business in ASC 805 is allocated to the individual assets based
on their relative fair value. The recognition of goodwill is precluded in asset acquisitions, as goodwill can be
recognized only in a business combination. The relative fair value allocation process could result in acquired
assets being valued in excess of or less than their individual fair values.
4
Transaction costs incurred in the acquisition of a group of assets generally are a component of the consideration transferred and as
such, are capitalized as a component of the cost of the assets acquired. This approach differs from the new basis approach for business
combinations, under which all transaction costs are expensed because they are not a component of the fair value of the acquired entity.

Moreover, the measurement of deferred tax assets acquired and deferred tax liabilities assumed in an
acquisition of a group of assets that does not constitute a business will usually require an iterative
approach that affects the measurement of other individual assets acquired and liabilities assumed in the
net asset group. See section 13 in our FRD, Income taxes, for further discussion of the requirements of
ASC 740 in asset acquisitions.
See section 2 of our FRD, Business combinations, for a discussion of the definition of a business and
transactions that are considered business combinations. In addition, see Appendix A in our FRD,
Business combinations, for a more detailed discussion on the accounting for asset acquisitions.
1.3 Internally developed intangible assets

Recognition
350-20-25-3
Costs of internally developing, maintaining, or restoring intangible assets (including goodwill) that are
not specifically identifiable, that have indeterminate lives, or that are inherent in a continuing business
and related to an entity as a whole, shall be recognized as an expense when incurred.

Recognition
350-30-25-3
Costs of internally developing, maintaining, or restoring intangible assets that are not specifically
identifiable, that have indeterminate lives, or that are inherent in a continuing business or nonprofit
activity and related to an entity as a whole, shall be recognized as an expense when incurred.
Costs to internally develop, maintain or restore unidentifiable intangible assets (including goodwill) that have
indeterminate lives or that are inherent in a continuing business and related to the business as a whole are
recognized as expenses as incurred unless explicitly capitalizable under other US GAAP (e.g., internally
developed software).

2 Subsequent accounting for intangible
assets other than goodwill
2.1 Determining the useful lives of intangible assets

Subsequent Measurement
350-30-35-1
The accounting for a recognized intangible asset is based on its useful life to the reporting entity. An
intangible asset with a finite useful life shall be amortized; an intangible asset with an indefinite useful
life shall not be amortized.
350-30-35-2
The useful life of an intangible asset to an entity is the period over which the asset is expected to
contribute directly or indirectly to the future cash flows of that entity. The useful life is not the period
of time that it would take that entity to internally develop an intangible asset that would provide similar
benefits. However, a reacquired right recognized as an intangible asset is amortized over the remaining
contractual period of the contract in which the right was granted. If an entity subsequently reissues
(sells) a reacquired right to a third party, the entity includes the related unamortized asset, if any,
in determining the gain or loss on the reissuance.
350-30-35-3
The estimate of the useful life of an intangible asset to an entity shall be based on an analysis of all
pertinent factors, in particular, all of the following factors with no one factor being more presumptive
than the other:
a. The expected use of the asset by the entity.
b. The expected useful life of another asset or a group of assets to which the useful life of the
intangible asset may relate.
c. Any legal, regulatory, or contractual provisions that may limit the useful life. The cash flows and
useful lives of intangible assets that are based on legal rights are constrained by the duration of
those legal rights. Thus, the useful lives of such intangible assets cannot extend beyond the
length of their legal rights and may be shorter.
d. The entity’s own historical experience in renewing or extending similar arrangements, consistent
with the intended use of the asset by the entity, regardless of whether those arrangements have
explicit renewal or extension provisions. In the absence of that experience, the entity shall
consider the assumptions that market participants would use about renewal or extension
consistent with the highest and best use of the asset by market participants, adjusted for entity-
specific factors in this paragraph.
e. The effects of obsolescence, demand, competition, and other economic factors (such as the
stability of the industry, known technological advances, legislative action that results in an
uncertain or changing regulatory environment, and expected changes in distribution channels)

2 Subsequent accounting for intangible assets other than goodwill
f. The level of maintenance expenditures required to obtain the expected future cash flows from the
asset (for example, a material level of required maintenance in relation to the carrying amount of
the asset may suggest a very limited useful life). As in determining the useful life of depreciable
tangible assets, regular maintenance may be assumed but enhancements may not.
Further, if an income approach is used to measure the fair value of an intangible asset, in determining
the useful life of the intangible asset for amortization purposes, an entity shall consider the period of
expected cash flows used to measure the fair value of the intangible asset adjusted as appropriate for
the entity-specific factors in this paragraph.
350-30-35-4
If no legal, regulatory, contractual, competitive, economic, or other factors limit the useful life of an
intangible asset to the reporting entity, the useful life of the asset shall be considered to be indefinite.
The term indefinite does not mean the same as infinite or indeterminate. The useful life of an intangible
asset is indefinite if that life extends beyond the foreseeable horizon — that is, there is no foreseeable
limit on the period of time over which it is expected to contribute to the cash flows of the reporting entity.
Such intangible assets might be airport route authorities, certain trademarks, and taxicab medallions.
Implementation Guidance and Illustrations

350-30-55-1C
This paragraph provides implementation guidance on paragraph 350-30-35-3(d). For a recognized
intangible asset, there might continue to be a difference between the useful life of the asset and the
period of expected cash flows used to measure the fair value of the asset. However, that difference
likely will be limited to situations in which the entity’s own assumptions about the period over which
the asset is expected to contribute directly and indirectly to the future cash flows of the entity are
different from the assumptions market participants would use in pricing the asset. In those situations,
it is appropriate for the entity to use its own assumptions because amortization of a recognized
intangible asset should reflect the period over which the asset will contribute both directly and
indirectly to the expected future cash flows of the entity.
Regardless of how an intangible asset (other than goodwill) is acquired (i.e., in a business combination, in
an asset acquisition or internally generated), the accounting treatment after the initial recognition of the
asset depends on the estimated useful life of that asset to the reporting company. The useful life of an
intangible asset is the period over which the asset is expected to contribute directly or indirectly to the
future cash flows of the company. The following are some observations regarding estimated useful lives:
• The useful life should reflect the period over which an intangible asset will contribute directly or
indirectly to the cash flows of the reporting company, not the period of time that it would take that
company to internally develop an intangible asset that would provide similar benefits.
• The useful life does not necessarily represent the intangible asset’s economic or productive life. The
useful life is only the period that the asset is expected to contribute to the future cash flows of that
company. That is, the acquiring company may believe that the intangible asset will generate cash
flows for a period longer than the company expects to own the asset (e.g., the company expects to
sell the asset before it is fully consumed). In this case, the asset would be amortized over the period
of expected ownership, considering the expected residual value.
• Some intangible assets contribute only indirectly to future cash flows, and the useful life is the period
over which that contribution will be made. For example, noncompete agreements contribute only
indirectly to future cash flows for the period that the agreement will preclude competition. In
addition, intangible assets that an acquirer does not intend to use might contribute indirectly to
future cash flows (see section 2.4).

An intangible asset with a finite useful life is amortized, while an intangible asset with an indefinite useful
life is not amortized, but is tested at least annually for impairment. In estimating the useful life of an
intangible asset, a company analyzes all pertinent factors. In particular, a company considers the
following factors with no one factor being more determinative than another:
• The expected use of the intangible asset by the company
• The expected useful life of another asset or a group of assets to which the useful life of the asset
may relate
• Any legal, regulatory or contractual provisions that may limit the useful life
• The entity’s experience in renewing or extending similar arrangements that are consistent with the
intended use of the asset by the entity, regardless of whether those arrangements have explicit
renewal or extension provisions
• If the entity doesn’t have experience with renewals or extensions, the assumptions that market
participants would use about renewals or extensions that would result in the highest and best use of
the asset, adjusted for entity-specific factors
• The effects of obsolescence, demand, competition and other economic factors (e.g., stability of the
industry, technological advances, legislative action that results in an uncertain or changing
regulatory environment, expected changes in distribution channels)
• The level of maintenance expenditures required to obtain the expected future cash flows from the
asset (e.g., a material level of required maintenance in relation to the carrying amount of the asset
that suggests the asset has a very limited useful life)5
If a company performs an analysis of all pertinent factors that should be considered in determining the
useful life of an intangible asset and concludes that there is no limit on the useful life of an intangible asset,
that asset is deemed to have an indefinite life. In other words, if no legal, regulatory, contractual,
competitive, economic or other factors limit the useful life of an intangible asset to the reporting company,
the useful life of that intangible asset is considered to be indefinite. Indefinite does not mean infinite or
indeterminate. The useful life of an intangible asset is indefinite if that life extends beyond the
foreseeable horizon. That is, there is no foreseeable limit on the period of time over which it is expected
to contribute to the cash flows of the reporting entity. Further, just because a precise useful life is not
determinable does not mean that the useful life is indefinite.
The following examples help illustrate the evaluation of whether acquired intangible assets are indefinite-lived.
Illustration 2–1: Determining the useful life of an intangible asset — indefinite life
Company A manufactures and distributes men’s and women’s sportswear. In 20X2, Company A
acquired Company B, a competitor that owned a prominent women’s sportswear line under Brand W.
The brand name has no limit on its legal life, and Company A intends to market and distribute women’s
sportswear products under the Brand W name indefinitely. Future cash flow projections support the
assertion that products sold under Brand W’s name will generate cash flows for Company A for an
indefinite period of time.
5
As in determining the useful life of depreciable tangible assets, regular maintenance may be assumed but enhancements may not.

Analysis:
Company A would recognize an intangible asset for the acquisition-date fair value of Brand W. Since
Brand W is expected to contribute to cash flows indefinitely and there are no associated costs of
renewal, it would be considered to have an indefinite useful life. Accordingly, Brand W would not be
amortized unless its useful life is determined to no longer be indefinite. Rather, it would be tested for
impairment annually, or more frequently if events or changes in circumstances indicate that it is more
likely than not that the asset is impaired.
Illustration 2–2: Determining the useful life of an intangible asset — finite life
Assume the same facts as in Illustration 2-1, except that the women’s sportswear industry is rapidly
changing, with significant competition coming from other apparel companies that have more sophisticated
technological capabilities than Company A. Recent trends indicate that consumer preference is shifting to
apparel with sweat-absorption technology, an area in which Company A has not yet made significant
advancements (Brand W similarly did not have such technology when acquired from Company B).
Analysis:
The products sold under Brand W’s name are in a competitive market that is expected to see increased
competition, which likely will result in declining consumer demand for Brand W. Further, Company A’s
lack of technological expertise to provide products with the desired sweat-absorption technology
would likely make it difficult to conclude that Brand W will generate cash flows for Company A for an
indefinite period of time. Accordingly, Brand W would be assigned a finite useful life.
2.1.1 Legal rights

Assets are sometimes based on legal rights that are conveyed in perpetuity rather than for a defined
finite term. Those assets may have cash flows associated with them that may be expected to continue for
many years, or indefinitely. If the cash flows are expected to continue only for a finite period, the useful
life of the asset should be limited to that finite period. However, if the cash flows are expected to
continue indefinitely, the useful life of the asset may be indefinite.
2.1.2 Renewal and extension rights

ASC 350-30 requires an entity to consider its own assumptions about renewal or extension of the term of
the arrangement, consistent with its expected use of the asset when determining the useful life of an
intangible asset. An entity is required to use its own historical experiences in renewing or extending similar
arrangements when determining the useful life of an intangible asset, adjusted for the entity-specific factors
in ASC 350-30-35-3. In the absence of historical experience, an entity must consider the assumptions
that market participants would use about renewal or extension (consistent with the highest and best use of
the asset by market participants), adjusted for the entity-specific factors in ASC 350-30-35-3. These
provisions are applied even if there is a substantial cost or material modification upon renewal.
Illustrations C-10 and C-11 in Appendix C provide factors to consider when determining the useful life of
an intangible asset when an entity lacks historical experience.
2.1.2.1 Effect of using an income valuation approach

It is common for an income approach to be used to measure the fair value of a recognized intangible
asset. In determining the useful life of the asset, the period of expected cash flows used to measure the
fair value of the recognized intangible asset, adjusted for the entity-specific factors in ASC 350-30-35-3,
should be considered. Those entity-specific factors include, but are not limited to, the entity’s expected
use of the asset and the entity’s historical experience in renewing or extending similar arrangements.

For a recognized intangible asset, there might continue to be a difference between the useful life of the asset
and the period of expected cash flows used to measure the fair value of the asset. However, the FASB
believes that any such difference will likely be limited to situations in which the entity’s own assumptions
about the period over which the asset is expected to contribute directly and/or indirectly to the future cash
flows of the entity are different from the assumptions market participants would use in pricing the asset. In
those situations, the FASB noted in ASC 350-30-55-1C that it believes it is appropriate for the entity to use
its own assumptions because amortization of a recognized intangible asset should reflect the period over
which the asset will contribute both directly and indirectly to the expected future cash flows of the entity.
2.1.3 Considerations in determining the useful life of a customer relationship

intangible asset
Under ASC 805-20-55-25, a customer relationship exists between an entity and its customers if (1) the
entity has information about the customer and has regular contact with the customer and (2) the customer
has the ability to make direct contact with the entity. Based on the definition of a customer relationship
and the nature of those relationships, we believe that it would be rare for a recognized customer relationship
intangible asset to have a useful life that is indefinite. This is due in part to the fact that customers frequently
turn over as a result of factors such as changes in relationships or customers going out of business.
In a 2003 speech, an SEC staff member6 cited the following reasons why it would be rare for a customer-
related intangible asset to have an indefinite life:
• “The asset being inherently related to relationships with ‘people,’ where people in organizations are
subject to turnover;
• More broadly, the customer churn rate. Generally, an established customer turnover rate and
likewise, a forecasted customer turnover rate, would directly affect the life estimate;
• The relative cost or penalty to the customer for terminating the relationship. Generally, a customer is
not ‘controlled’ by an entity such that the customer can’t transfer its business elsewhere without
undue cost or penalty; and
• Economic effects such as competition and demand. Economic effects will vary depending on each
situation; however, higher demand elasticity and switching availability would typically correspond to
a shorter life estimate.”
In considering whether a customer relationship intangible asset has an indefinite life, it is also important
for a company to consider how it determines the fair value of the customer relationship intangible asset.
For example, if the income approach is used to measure the customer relationship intangible and the
associated cash flows shows a declining trend, assigning an indefinite useful life may be inconsistent.
The SEC staff has requested that registrants disclose how they determined the useful life of customer-
related intangible assets and challenges such useful lives when the underlying assumptions do not appear
consistent with customer information disclosed in other areas of the filing.
Appendix C includes examples and illustrates different intangible assets and how they should be accounted
for in accordance with this subtopic, including determining whether the useful life of an intangible asset
is indefinite.
6
Remarks by Chad A. Kokenge, Professional Accounting Fellow at the SEC, at the 2003 Thirty-First AICPA National Conference on
Current SEC Developments, 11 December 2003.

2.1.4 Considerations in determining the useful life of a reacquired right intangible asset
An acquirer may reacquire a right that it previously had granted to the acquiree to use one or more of
the acquirer’s recognized or unrecognized assets. Examples of such rights include a right to use the
acquirer’s trade name under a franchise agreement or a right to use the acquirer’s technology under a
technology licensing agreement. From a measurement perspective, the guidance in ASC 805 precludes
including the value of any renewal rights (both explicit and implicit renewal rights) in determining the fair
value of the reacquired right intangible asset.
For the same reasons discussed in section 4.2.5.3.7 of our FRD, Business combinations, regarding the
determination of the fair value of a reacquired right, the guidance in ASC 805 limits the period over which
the intangible asset is amortized (i.e., its useful life) to the remaining contractual term (i.e., excluding
renewal periods) of the contract from which the reacquired right arises. If a reacquired right is subsequently
sold to a third party, the acquirer recognizes a gain or loss on the sale based on the difference between
the sales price and the remaining carrying amount of the reacquired right.
2.1.5 SEC observations on determining the useful life of an intangible asset

In a 16 August 2001 letter to the Emerging Issues Task Force (EITF) on Statements 141 and 142
implementation issues, the SEC staff stated there may be factors other than those codified in
ASC 350-30-35-3 that bear upon the determination of the appropriate estimated useful life of an
intangible asset. For instance, the staff believes that the following other factors may need to be
considered in determining the useful lives of intangible assets:
• Uncertain continuity of revenues dependent on retention of key employees
• The “churn” rate of customers
• The mobility of the customer and employee base
In response to the SEC staff’s letter, the FASB staff noted that the list of factors codified in ASC 350-30-
35-3 is illustrative and agreed that the factors the SEC staff identified also may be relevant factors to
consider depending on the nature of the asset. The FASB staff further indicated that there may be other
relevant factors to consider in addition to those codified in ASC 350-30-35-3 and those identified by the
SEC staff, depending on the nature of the asset.
When determining the useful life of an intangible asset, the SEC staff expects registrants to consider all
factors listed in ASC 350 and all other relevant information when determining the period over which the
asset is expected to contribute directly or indirectly to its future cash flows. The SEC staff may ask how a
registrant has considered its own historical experience in renewing or extending similar arrangements
(consistent with the intended use of the asset by the registrant), regardless of whether those arrangements
have explicit renewal or extension provisions. A registrant should consider the useful life of an intangible
asset to be indefinite only after considering all relevant facts and determining that there are no legal,
regulatory, contractual, competitive, economic or other factors that limit the useful life of the intangible
asset. The SEC staff has challenged assertions that intangible assets have an indefinite life and has asked
registrants to disclose, when not otherwise provided, what factors were considered in making this determination.

2.2 Intangible assets with finite lives

350-30-35-6
A recognized intangible asset shall be amortized over its useful life to the reporting entity unless that
life is determined to be indefinite. If an intangible asset has a finite useful life, but the precise length of
that life is not known, that intangible asset shall be amortized over the best estimate of its useful life.
The method of amortization shall reflect the pattern in which the economic benefits of the intangible
asset are consumed or otherwise used up. If that pattern cannot be reliably determined, a straight-line
amortization method shall be used.
350-30-35-7
An intangible asset shall not be written down or off in the period of acquisition unless it becomes
impaired during that period. However, paragraph 730-10-25-2(c) requires amounts assigned to
intangible assets acquired in a transaction other than a business combination or an acquisition by a
not-for-profit entity that are to be used in a particular research and development project and that
have no alternative future use to be charged to expense at the acquisition date.
As noted above, an acquired intangible asset must be amortized over its useful life, unless the useful life
is indefinite. If an intangible asset has a finite useful life, but the precise length of that life is not known,
the intangible asset should be amortized over the best estimate of its useful life.
An intangible asset should not be written down or off in the period of acquisition unless it becomes
impaired during that period. However, amounts assigned to intangible assets acquired in a transaction
other than a business combination that are to be used in a particular research and development project
and that have no alternative future use should be charged to expense in the period acquired in accordance
with ASC 730. See section A.3.1.1.2 in our FRD, Business combinations, for further discussion on the
accounting for acquired research and development assets in an asset acquisition.
See section 2.3.1 below and section 4.2.6 in our FRD, Business combinations, for further discussion on
the accounting for acquired research and development assets in a business combination.
2.2.1 Amortization method

In paragraph B54 of the Background Information and Basis for Conclusions of Statement 142, the FASB
noted that in considering the methods of amortization, Opinion 17 required that a straight-line method
be used to amortize intangible assets unless another method was demonstrated to be more appropriate.
However, the FASB also noted that circumstances may exist in which another method may be more
appropriate, such as in the case of a license that entitles the holder to produce a finite quantity of
product. The FASB therefore concluded that the amortization method adopted should reflect the pattern
in which the asset is consumed if that pattern can be “reliably determined,” with the straight-line method
being used as a default.

The evaluation of whether the pattern in which the asset is consumed can be reliably determined involves
judgment based on the facts and circumstances. While the term is not defined in US GAAP, we believe that
the reliably determined threshold suggests there should be a relatively high level of confidence that actual
cash flows (or the pattern of cash flows) will not deviate significantly from those used in the measurement7
of the intangible asset. For example, a higher discount rate assumption used in a valuation may suggest an
increase in the inherent risk in the cash flows. As the inherent risk increases, it would be less likely that a
pattern of amortization commensurate with the pattern of cash flows used in the valuation would be
considered reliably determinable. In those instances, the straight-line method of amortization would likely
be more appropriate.
Certain intangible assets, such as those that are customer-related, derive their value from the future
cash flows expected from the customers of the acquired entity. These types of intangible assets are often
valued using the income approach, with an attrition rate resulting in a dissipation of the cash flows over
time. If the pattern of declining cash flows is reliably determinable, an accelerated amortization method
that reflects the economic benefit to the entity should be used. However, if it has been determined that
the pattern of economic benefit to the entity cannot be reliably determined, but the underlying cash
flows supporting the measurement of the customer-related intangible asset shows a decay, we believe
that the straight-line method of amortization using a shortened estimated useful life is appropriate.
2.2.1.1 SEC observations on determining the amortization method of a finite-lived intangible asset
When the pattern of economic benefit to the entity can be reliably determined, we understand the SEC
staff has accepted the straight-line method of amortization over a shorter period if the difference in
amortization is not material from amortization using an accelerated method. Entities should carefully
evaluate the materiality of such differences including whether the current period amortization amounts
and cumulative differences in amortization may become material in future periods.
The SEC staff has inquired about the amortization method chosen for customer-related intangible assets
(e.g., straight-line versus accelerated) and has requested that registrants explain their key assumptions
about the expected future cash flows from an acquired customer-related intangible asset to support their
chosen amortization method.
When a method of amortization other than straight-line is used and the accelerated pattern is based on
the estimated cash flows used in the valuation, a question arises as to whether the ratio of estimated
period cash flows to total cash flows should be determined on a discounted or undiscounted basis.
Neither the FASB nor SEC staff has provided any guidance on the use of discounted versus undiscounted
cash flows in the determination of an amortization pattern. Absent any such guidance, we believe that an
entity can elect to use discounted or undiscounted cash flows to determine the amortization pattern. The
entity should consistently apply its accounting policy to all intangible assets of the entity subjected to the
amortization method. Appropriate disclosure of the accounting policy applied should be provided,
consistent with ASC 235-10.
2.2.1.1.1 Back-end loaded patterns of consumption

We believe that it will be rare that entities would have persuasive evidence to support an amortization
method for an intangible asset with a finite useful life that results in a lower amount of accumulated
amortization than under the straight-line method. The SEC staff believes that for many intangible assets
that have patterns of consumption other than straight-line patterns, benefits are generally skewed
towards the earlier years. Consequently, the SEC staff has indicated that it will view with skepticism an
intangible asset with an amortization pattern that favors greater charges in later years.
7
In many instances, intangible assets that are not often bought or sold separately outside of a business combination are generally
valued using an income approach.

2.2.2 Residual value

350-30-35-8
The amount of an intangible asset to be amortized shall be the amount initially assigned to that asset
less any residual value. The residual value of an intangible asset shall be assumed to be zero unless at
the end of its useful life to the entity the asset is expected to continue to have a useful life to another
entity and either of the following conditions is met:
a. The reporting entity has a commitment from a third party to purchase the asset at the end of its
useful life.
b. The residual value can be determined by reference to an exchange transaction in an existing

market for that asset and that market is expected to exist at the end of the asset’s useful life.
The amount of an intangible asset to be amortized is the amount initially assigned to that asset less its
residual value, which is the estimated fair value of the intangible asset at the end of its useful life to the
company (less any disposal cost). The residual value of an intangible asset should be assumed to be zero
unless at the end of its useful life to the company, the asset is expected to have a useful life to another
entity and (1) the reporting company has a commitment from a third party to purchase the asset at the
end of its useful life or (2) the residual value can be determined by reference to an exchange transaction
in an existing market for that asset and that market is expected to exist at the end of the asset’s useful
life. The residual value of an intangible asset should be determined net of any costs to dispose of the
intangible asset. We believe that it will be rare for an intangible asset to have a residual value.
2.2.3 Periodic evaluation of the estimated useful life

350-30-35-9
An entity shall evaluate the remaining useful life of an intangible asset that is being amortized each
reporting period to determine whether events and circumstances warrant a revision to the remaining
period of amortization. If the estimate of an intangible asset’s remaining useful life is changed, the
remaining carrying amount of the intangible asset shall be amortized prospectively over that revised
remaining useful life.
350-30-35-10
An intangible asset that initially is deemed to have a finite useful life shall cease being amortized if it
is subsequently determined to have an indefinite useful life, for example, due to a change in legal
requirements. If an intangible asset that is being amortized is subsequently determined to have an
indefinite useful life, the asset shall be tested for impairment in accordance with paragraphs 350-30-
35-18 through 35-20.
350-30-35-11
Any resulting impairment loss would be due to a change in accounting estimate and thus, consistent
with Topic 250, shall be recognized as a change in estimate, not as a change in accounting principle.
Therefore, that loss shall be presented in the income statement in the same manner as other
impairment losses.

350-30-35-12
That intangible asset shall no longer be amortized and shall be accounted for in the same manner as
other intangible assets that are not subject to amortization.
The useful life of the intangible asset should be evaluated each reporting period (e.g., annually) to
determine whether events and circumstances warrant a revision to the remaining useful life. Changes in
the estimated remaining useful life would be reflected prospectively as the intangible asset is amortized
over the revised remaining useful life. See our FRD, Accounting changes and error corrections, for
further discussion on changes in accounting estimates in accordance with ASC 250.
We believe that it will be rare for an intangible asset that is being amortized to be subsequently deemed
to have an indefinite life. However, in this situation, the asset should be tested for impairment in the
same manner as other indefinite-lived intangible assets (i.e., compare the carrying amount to the fair
value of the asset) before the change in classification and accounting for the asset. Any resulting
impairment loss is recognized in a manner consistent with other impairments of indefinite-lived intangible
assets and not as a change in accounting principle. Therefore, the loss would be presented in the income
statement in the same manner as other impairment losses. The amortization of the asset should then
cease, and the guidance on indefinite-lived intangible assets should be applied to that asset going forward.
Such a reclassification of the asset might result in an impairment charge because the recoverability of the
asset under the undiscounted cash flow approach in ASC 360-10 used to assess whether an amortizable
intangible asset is impaired would no longer be considered in determining if the asset is impaired under
the indefinite-lived intangible asset approach.
2.2.4 Impairment of finite-lived intangible assets

350-30-35-14
An intangible asset that is subject to amortization shall be reviewed for impairment in accordance with
the Impairment or Disposal of Long-Lived Assets Subsections of Subtopic 360-10 by applying the
recognition and measurement provisions in paragraphs 360-10-35-17 through 35-35. In accordance
with the Impairment or Disposal of Long–Lived Assets Subsections of Subtopic 360-10, an impairment
loss shall be recognized if the carrying amount of an intangible asset is not recoverable and its
carrying amount exceeds its fair value. After an impairment loss is recognized, the adjusted carrying
amount of the intangible asset shall be its new accounting basis. Subsequent reversal of a previously
recognized impairment loss is prohibited.
Intangible assets that are being amortized under ASC 350-30 are reviewed for impairment when
indicators of impairment are present in accordance with ASC 360-10. The indicators included in
ASC 360-10-35-21 are used in determining when an intangible asset is tested for impairment. Those
indicators are examples of events or changes in circumstances that indicate that the carrying amount of
an asset may not be recoverable, and include, but are not limited to:
• A significant decrease in the market price of an asset
• A significant adverse change in the extent or manner in which an asset is being used
• A significant adverse change in legal factors or in the business climate that could affect the value of
an asset, including an adverse action or assessment by a regulator

• An accumulation of costs significantly in excess of the amount originally expected for the acquisition
or development of an asset
• A current period operating or cash flow loss combined with a history of operating or cash flow losses
or a projection or forecast that demonstrates continuing losses associated with the use of an asset
• A current expectation that, more likely than not,8 an asset will be sold or otherwise disposed of
significantly before the end of its previously estimated useful life
See our FRD, Impairment or disposal of long-lived assets, for a detailed discussion on the impairment
assessment for finite-lived intangible assets.
2.3 Intangible assets with indefinite lives

350-30-35-15
If an intangible asset is determined to have an indefinite useful life, it shall not be amortized until its
useful life is determined to be no longer indefinite.
350-30-35-16
An entity shall evaluate the remaining useful life of an intangible asset that is not being amortized each
reporting period to determine whether events and circumstances continue to support an indefinite
useful life.
350-30-35-17
If an intangible asset that is not being amortized is subsequently determined to have a finite useful life,
the asset shall be tested for impairment in accordance with paragraphs 350-30-35-18 through 35-19.
That intangible asset shall then be amortized prospectively over its estimated remaining useful life and
accounted for in the same manner as other intangible assets that are subject to amortization.
350-30-35-17A
Intangible assets acquired in a business combination or an acquisition by a not-for-profit entity that are
used in research and development activities (regardless of whether they have an alternative future use)
shall be considered indefinite lived until the completion or abandonment of the associated research and
development efforts. During the period that those assets are considered indefinite lived, they shall not
be amortized but shall be tested for impairment in accordance with paragraphs 350-30-35-18 through
35-19. Once the research and development efforts are completed or abandoned, the entity shall
determine the useful life of the assets based on the guidance in this Section. Consistent with the guidance
in paragraph 360-10-35-49, intangible assets acquired in a business combination or an acquisition by
a not-for-profit entity that have been temporarily idled shall not be accounted for as if abandoned.
350-30-35-13
When an intangible asset’s useful life is no longer considered to be indefinite, such as when
unanticipated competition enters the market, the intangible asset must be amortized over the
remaining period that it is expected to contribute to cash flows.
8
The term “more likely than not” refers to a level of likelihood that is more than 50 percent.

ASC 350-30-35-4 indicates that the useful life of an intangible asset is indefinite if that life extends
beyond the foreseeable horizon. That is, there is no foreseeable limit on the period of time over which it
is expected to contribute to the cash flows of the reporting entity. As a result, entities should perform a
detailed analysis of all relevant factors before a determination is made that there is no limit on the useful
life of an intangible asset and that it therefore has an indefinite useful life. An intangible asset that is
deemed to have an indefinite life should not be amortized until its useful life is determined to be finite.
Companies should review the useful life of an indefinite-lived intangible asset each reporting period to
determine whether events and circumstances continue to support the indefinite useful life classification.
When a company determines that the life of an intangible asset is no longer indefinite, that asset should
be tested for impairment in the same manner as other indefinite-lived intangible assets, as described
below. The intangible asset, after recognition of any impairment, should then be amortized over its
remaining estimated useful life. The example below illustrates this concept.
Illustration 2–3: Change in estimated useful life — from indefinite-lived to finite-lived
Company A manufactures and distributes men’s and women’s sportswear. At 31 December 20X1,
Company A has an indefinite-lived intangible asset recorded for an existing women’s sportswear
brand, Brand X, from a previous acquisition. In 20X2, Company A acquired Company B, a competitor
that owned a prominent women’s sportswear line under Brand W. The brand name has no limit on its
legal life, and Company A intends to market and distribute women’s sportswear products under the
Brand W name indefinitely. Future cash flow projections support the assertion that products sold
under Brand W’s name will generate cash flows for Company A for an indefinite period of time. As of
the acquisition date, the acquisition of Brand W did not affect Company A’s conclusion that Brand X
should still be classified as an indefinite-lived intangible asset.
In 20X3, Brand W’s sales declined while Brand X’s sales increased. Accordingly, on 30 June 20X3,
Company A determines that the continuing competition between its two brands is detrimental to
Company A’s overall sales and, therefore, decides to phase out Brand W over the next five years.
Analysis:
Company A’s decision to phase out Brand W over the next five years results in the determination that
Brand W should no longer be classified as an indefinite-lived intangible asset. Accordingly, Company A
should test Brand W for impairment immediately prior to the change in classification (in this case as of
30 June 20X3), and recognize an impairment charge, if any. Company A should then amortize Brand W
over its five-year useful life.
2.3.1 Acquired research and development assets

ASC 805 requires that all intangible assets acquired in a business combination that are used in research
and development activities (i.e., in-process research and development (IPR&D) assets) be capitalized as
indefinite-lived intangible assets, regardless of whether they have an alternative future use. These
acquired assets remain indefinite-lived assets until the completion or abandonment (i.e., the time at
which the company determines it will not pursue further development of the IPR&D assets, will not derive
defensive value from them, and will not sell or license or rent them) of the associated research and
development efforts. As discussed in section 2.3.2, during the period in which those acquired assets are
considered indefinite-lived (i.e., the period prior to completion or abandonment), they are not amortized
but are tested for impairment in accordance with ASC 350-30-35-18 through 35-20.9
9
See section 2.3.2.1.1.6 for additional considerations relating to application of the qualitative assessment to IPR&D assets and see
section 2.3.2.4 for impairment considerations for acquired IPR&D outlicensing arrangements.

Once the research and development efforts are completed, the entity determines the useful life of the
assets, as discussed in section 2.1, and performs an impairment test immediately prior to the change in
classification in accordance with ASC 350-30-35-18 through 35-20. If the research and development
efforts are abandoned prior to being completed, the IPR&D asset is written off to expense in the period of
abandonment. Pursuant to ASC 360-10-35-47 through 35-49, intangible assets acquired in a business
combination that have been temporarily idled are not accounted for as if abandoned.
Research and development costs incurred after the acquisition date related to IPR&D assets acquired in a
business combination should be accounted for in accordance with the guidance in ASC 730. Accordingly,
those costs are charged to expense when incurred unless they have an alternative future use.
It is important to note that the accounting for IPR&D in a business combination is different from that of
acquisitions of a group of assets not constituting a business, as discussed in section 2.2. See sections 4.2.6
and A.3.1.1.2 in our FRD, Business combinations, for further discussion on the accounting for acquired
research and development assets in a business combination and an asset acquisition, respectively.
Illustration 2–4: Acquired IPR&D asset subsequently completed
On 1 January 20X1, Pharma X acquires Biotech Y in a business combination accounted for under
ASC 805. Prior to the business combination, Biotech Y incurred research and development costs
related to an in-process project. These research and development costs have been expensed as
incurred by Biotech Y as appropriate under ASC 730. Pharma X believes that the in-process project of
Biotech Y has potential and decides to continue the project after acquisition.
On the acquisition date, Pharma X determines that the fair value of the IPR&D asset is $15 million. As
a result, Pharma X recognizes an indefinite-lived intangible asset of $15 million for the IPR&D asset.
On 1 June 20X2, Pharma X completes Phase III clinical trials and applies for and receives FDA
approval to commercially market the drug. From 1 January 20X1 to 1 June 20X2, Pharma X has
appropriately tested the IPR&D asset for impairment annually. All impairment tests indicated that the
fair value of the IPR&D asset exceeded its carrying amount and, accordingly, Pharma X has recorded
no impairment loss on the IPR&D asset as of 1 June 20X2.
Analysis:
Because the IPR&D asset is no longer indefinite-lived on 1 June 20X2, Pharma X must determine the useful
life of the IPR&D asset and reclassify the intangible asset from indefinite-lived to finite-lived. Also with
this reclassification, Pharma X is required to perform an impairment test (as discussed in section 2.3.2)
of the IPR&D asset in accordance with ASC 350-30-35-18 through 35-20. After recording any impairment,
Pharma X amortizes the finite-lived intangible asset over its remaining estimated useful life.
Illustration 2–5: Acquired IPR&D asset subsequently tested for impairment
Assume the same information regarding the business combination in Illustration 2-4, except that
Pharma X did not receive FDA approval. However, Pharma X still intends to continue the development
of the product but now anticipates that cash flows and the related future benefits would be less than
originally anticipated on the acquisition date. As a result of identifying this triggering event, on 1 June
20X2, Pharma X determines that the fair value of the IPR&D asset is now $12 million.
Analysis:
Because of the triggering events (i.e., no FDA approval and decline in expected future cash flows) on 1 June
20X2, Pharma X records an impairment loss of $3 million and reduces the carrying amount of the IPR&D
asset from $15 million to $12 million. If the project later becomes successful and receives FDA approval,
Pharma X would assess the IPR&D asset for impairment immediately prior to the change in classification
and recognize an impairment charge, if any. Pharma X would then amortize the remaining carrying
amount of $12 million (assuming there were no other impairments) over its estimated useful life.

Illustration 2–6: Acquired IPR&D asset subsequently abandoned
Assume the same information regarding the business combination in Illustration 2-4, except that
Pharma X did not receive FDA approval and decides to abandon the project (i.e., will not pursue further
development of the asset, will not derive defensive value from it and will not sell, license or rent it).
Analysis:
Assuming the IPR&D asset has no alternative future use or value to a market participant, because
Pharma X abandoned the project, it would expense the entire carrying amount of the asset as of the
abandonment date.
2.3.2 Impairment of indefinite-lived intangible assets

350-30-35-18
An intangible asset that is not subject to amortization shall be tested for impairment annually and
more frequently if events or changes in circumstances indicate that it is more likely than not that the
asset is impaired.
350-30-35-18A
An entity may first perform a qualitative assessment, as described in this paragraph and paragraphs
350-30-35-18B through 35-18F, to determine whether it is necessary to perform the quantitative
impairment test as described in paragraph 350-30-35-19. An entity has an unconditional option to
bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed
directly to performing the quantitative impairment test as described in paragraph 350-30-35-19. An
entity may resume performing the qualitative assessment in any subsequent period. If an entity elects
to perform a qualitative assessment, it first shall assess qualitative factors to determine whether it is
more likely than not (that is, a likelihood of more than 50 percent) that an indefinite-lived intangible
asset is impaired.
350-30-35-19
The quantitative impairment test for an indefinite-lived intangible asset shall consist of a comparison
of the fair value of the asset with its carrying amount. If the carrying amount of an intangible asset
exceeds its fair value, an entity shall recognize an impairment loss in an amount equal to that excess.
After an impairment loss is recognized, the adjusted carrying amount of the intangible asset shall be
its new accounting basis.
350-30-35-20
Subsequent reversal of a previously recognized impairment loss is prohibited.
An intangible asset that is deemed to have an indefinite useful life is not subject to the impairment
testing guidance in ASC 360-10. The FASB noted that the nonamortization of the asset merits a more
stringent model for the measurement and recognition of impairment. Additionally, because the cash
flows associated with indefinite-lived intangible assets would extend into the future indefinitely, those
assets might never fail the undiscounted cash flows recoverability test under ASC 360-10. As a result,
the recognition of impairment losses on indefinite-lived intangible assets is based solely on a comparison
of their fair value to book value as of the impairment test date, without consideration of any recoverability
test or any determination by management of whether a decline in fair value is temporary.

Indefinite-lived intangible assets are tested for impairment annually and more frequently if events or
changes in circumstances between annual tests indicate that it is more likely than not that the asset is
impaired. (The examples of events and circumstances in ASC 350-30-35-18B, as well as other relevant
events and circumstances, should be considered in determining if an interim impairment test is necessary.
Refer to section 2.3.2.1 for additional discussion of these events and circumstances.) If the fair value of the
intangible asset is less than its carrying amount, an impairment loss is recognized in an amount equal to the
difference. The asset will then be carried at its new fair value. Thus, unless a company elects to apply the
qualitative assessment, it will have to determine fair values for these intangible assets every year and
apply, in effect, a lower of carrying amount or fair value model. Any subsequent reversal of a previously
recognized impairment loss is prohibited. Further, recognition of an impairment charge for an intangible
asset that was previously considered indefinite-lived may be an indication that the asset no longer meets
the indefinite-lived criteria, and thus should be amortized over its remaining useful life.
Unlike the impairment test for amortizable intangibles and for goodwill, the impairment test for indefinite-
lived intangible assets does not include a recoverability test. Because acquired intangible assets are initially
recognized at fair value, any decrease in the fair value of the indefinite-lived intangible asset will result in an
impairment charge. For example, if discounted cash flows are used to determine the fair value of indefinite-
lived intangible assets, any increase in interest rates, without an offsetting increase in future cash flows, will
cause those discounted cash flows to decrease, resulting in an impairment charge. Therefore, in periods of
rising interest rates, companies may be required to record one or more impairment charges as interest
rates rise, leading to earnings volatility.
ASC 350-30 is silent as to the timing of the annual impairment test. We believe that an annual test date (for
each intangible asset, each class of intangible asset, or all intangible assets) can be established at any date
during the year as long as that date is used consistently in subsequent years. This is consistent with the
FASB’s requirements related to the annual goodwill impairment test. We observe that companies often
choose the beginning of the fourth fiscal quarter as the annual measurement date because book balances
from the end of the preceding quarter are available and companies have a reasonable period of time to
estimate fair value prior to their annual reporting deadlines. However, if a company identifies an impairment
charge when performing its annual assessment as of the beginning of its fiscal fourth quarter, it should
consider whether the impairment is appropriately recognized in the fourth quarter or whether it should
have been recognized in an earlier interim period.
2.3.2.1 Optional qualitative impairment assessment for indefinite-lived intangible assets

350-30-35-18B
In assessing whether it is more likely than not that an indefinite-lived intangible asset is impaired, an
entity shall assess all relevant events and circumstances that could affect the significant inputs used to
determine the fair value of the indefinite-lived intangible asset. Examples of such events and
circumstances include the following:
a. Cost factors such as increases in raw materials, labor, or other costs that have a negative effect
on future expected earnings and cash flows that could affect significant inputs used to determine
the fair value of the indefinite-lived intangible asset
b. Financial performance such as negative or declining cash flows or a decline in actual or planned
revenue or earnings compared with actual and projected results of relevant prior periods that could
affect significant inputs used to determine the fair value of the indefinite-lived intangible asset

c. Legal, regulatory, contractual, political, business, or other factors, including asset-specific factors
that could affect significant inputs used to determine the fair value of the indefinite-lived
intangible asset
d. Other relevant entity-specific events such as changes in management, key personnel, strategy, or
customers; contemplation of bankruptcy; or litigation that could affect significant inputs used to
determine the fair value of the indefinite-lived intangible asset
e. Industry and market considerations such as a deterioration in the environment in which an entity
operates, an increased competitive environment, a decline in market-dependent multiples or
metrics (in both absolute terms and relative to peers), or a change in the market for an entity’s
products or services due to the effects of obsolescence, demand, competition, or other economic
factors (such as the stability of the industry, known technological advances, legislative action that
results in an uncertain or changing business environment, and expected changes in distribution
channels) that could affect significant inputs used to determine the fair value of the indefinite-
lived intangible asset
f. Macroeconomic conditions such as deterioration in general economic conditions, limitations on

accessing capital, fluctuations in foreign exchange rates, or other developments in equity and
credit markets that could affect significant inputs used to determine the fair value of the
indefinite-lived intangible asset.
350-30-35-18C
The examples included in the preceding paragraph are not all-inclusive, and an entity shall consider
other relevant events and circumstances that could affect the significant inputs used to determine the
fair value of the indefinite-lived intangible asset. An entity shall consider the extent to which each of
the adverse events and circumstances identified could affect the significant inputs used to determine
the fair value of an indefinite-lived intangible asset. An entity also shall consider the following to
determine whether it is more likely than not that the indefinite-lived intangible asset is impaired:
a. Positive and mitigating events and circumstances that could affect the significant inputs used to
determine the fair value of the indefinite-lived intangible asset
b. If an entity has made a recent fair value calculation for an indefinite-lived intangible asset, the
difference between that fair value and the then carrying amount
c. Whether there have been any changes to the carrying amount of the indefinite-lived intangible asset.
350-30-35-18D
An entity shall evaluate, on the basis of the weight of the evidence, the significance of all identified events
and circumstances that could affect the significant inputs used to determine the fair value of the indefinite-
lived intangible asset for determining whether it is more likely than not that the indefinite-lived intangible
asset is impaired. None of the individual examples of events and circumstances included in paragraph
350-30-35-18B(a) through (f) are intended to represent standalone events and circumstances that
necessarily require an entity to calculate the fair value of an intangible asset. Also, the existence of
positive and mitigating events and circumstances is not intended to represent a rebuttable presumption
that an entity should not perform the quantitative impairment test as described in paragraph 350-30-35-19.
350-30-35-18E
If after assessing the totality of events and circumstances and their potential effect on significant inputs
to the fair value determination an entity determines that it is not more likely than not that the indefinite-
lived intangible asset is impaired, then the entity need not calculate the fair value of the intangible asset
and perform the quantitative impairment test in accordance with paragraph 350-30-35-19.

350-30-35-18F
If after assessing the totality of events and circumstances and their potential effect on significant inputs
to the fair value determination an entity determines that it is more likely than not that the indefinite-lived
intangible asset is impaired, then the entity shall calculate the fair value of the intangible asset and
perform the quantitative impairment test in accordance with the following paragraph.
ASC 350 requires companies to test indefinite-lived intangible assets for impairment annually, and more
frequently if indicators of impairment exist. ASC 350 also provides for an optional qualitative assessment
to test indefinite-lived intangible assets for impairment that may allow companies to avoid calculating the
assets’ fair value each year. The qualitative assessment permits companies to assess whether it is more
likely than not (i.e., a likelihood of greater than 50%) that an indefinite-lived intangible asset is impaired. If a
company concludes based on the qualitative assessment that it is not more likely than not that the fair value
of an indefinite-lived intangible asset is less than its carrying amount, it would not have to quantitatively
determine the asset’s fair value. While the qualitative assessment may change how companies perform
impairment testing, it does not change the timing or measurement of impairments.
The qualitative assessment allows companies to first consider events and circumstances that may affect
the fair value of an indefinite-lived intangible asset to determine whether it is necessary to perform the
quantitative impairment test. The guidance requires companies to focus on the significant inputs used to
determine fair value, since there are many different types of indefinite-lived intangible assets and diverse
factors could affect the fair value for each asset.
Examples of events and circumstances that could affect the significant inputs include:
• Cost factors, such as increases in raw materials, labor or other costs that have a negative effect on
future expected earnings and cash flows
• Financial performance, such as negative or declining cash flows, or a decline in actual or planned
revenue or earnings compared with actual and projected results of relevant prior periods
• Legal, regulatory, contractual, competitive, economic, political, business or other factors
• Other relevant entity-specific events, such as changes in management, key personnel, strategy or
customers; contemplation of bankruptcy; or litigation
• Industry and market considerations, such as a deteriorating operating environment, increased

competition, a decline in market-dependent multiples or metrics (both in absolute terms and relative
to peers) or a change in the market for an entity’s products or services due to obsolescence,
demand, competition or other economic factors
• Macroeconomic conditions, such as a deterioration in general economic conditions, limited access to

capital, foreign exchange rate fluctuations or other equity and credit market developments
None of these events or circumstances by itself would indicate that it is more likely than not that an
indefinite-lived intangible asset is impaired, requiring a company to calculate the asset’s fair value.
However, a company must evaluate all events and circumstances, including positive or mitigating factors,
that could affect the significant inputs used to determine fair value. Weighing the effect of various positive
and negative factors may be challenging and will require companies to use significant judgment.
2.3.2.1.1 Five-step approach for applying the qualitative assessment to test indefinite-lived intangibles
for impairment
While the specific factors that must be evaluated will vary depending on various factors, including the
nature of the indefinite-lived asset, the company and relevant industry, we generally believe that the
framework provided below will be useful for companies if they choose to apply the qualitative assessment.
See Appendix B for an illustrative example on how to apply the framework.

2.3.2.1.1.1 Determine the starting point
Text Identify
the most Identify Weigh the
Determine the relevant events and identified Conclude
starting point drivers of circumstances factors
fair value
Companies should use the most recent fair value calculation for an indefinite-lived intangible asset as the
starting point for a qualitative assessment. The amount by which the fair value of the asset exceeded its
carrying amount (i.e., excess fair value) in that calculation may support the continued use of the qualitative
assessment despite the existence of negative evidence.
Companies with indefinite-lived intangible assets whose fair values have recently exceeded carrying amounts
by significant margins likely will benefit from the qualitative assessment. For indefinite-lived intangible
assets that have recently been impaired or don’t have a significant margin between the carrying amount
and fair value, companies may find it more cost-effective to move directly to the determination of fair value.
Companies also should consider external factors that could affect the significant inputs used to determine
fair value. Evaluating trends in the overall economy and industry may be a relatively quick way for a
company to assess whether it will be appropriate to apply the qualitative assessment for a particular
indefinite-lived intangible asset.
Question 2.1 At what point can data from the most recent fair value calculation no longer be used to evaluate the
amount of excess fair value as a starting point when applying the qualitative assessment?
There are no bright lines. Judgment will be required to evaluate the relevance of data in the most recent
fair value calculation. Generally, the more time that has passed since the last fair value calculation, the more
challenging it may be to support applying the qualitative assessment or arriving at an impairment conclusion
based solely on a qualitative assessment. This is because an entity would need to consider a cumulative
analysis of the changes in events and circumstances since the last quantitative impairment test.
2.3.2.1.1.2 Identify the most relevant drivers of fair value
Identify
Text
Determine the
relevant events and identified Conclude
starting point
circumstances factors
drivers of
fair value
In order to identify the most relevant drivers of fair value, companies should understand those assumptions
that are most likely to affect the fair value of the indefinite-lived intangible asset. In doing so, a company
should understand the valuation method(s) (e.g., relief from royalty method, Greenfield method) that are
appropriate to determine the fair value of each indefinite-lived intangible asset and the assumptions that
are most likely to affect each method. As a starting point, companies may want to consider the valuation
method and drivers of fair value used in their last quantitative impairment test to determine whether they
are still relevant.

Understanding the assumptions that most affect the fair value of an indefinite-lived intangible asset will
enable companies to focus their efforts on evaluating the key assumptions of the qualitative assessment
so that those factors are given more weight in the analysis. For example, drivers of fair value for an
indefinite-lived intangible asset that is valued using the relief from royalty method may be revenue
stream, royalty rate or the discount rate.
Companies also should consider that a significant input for a particular indefinite-lived intangible asset
may be a component of a key assumption. For example, a discount rate typically is identified as a key
assumption when applying the income approach to determine fair value. However, depending on the
facts and circumstances, a company may identify an element of the discount rate, such as the risk
premium or the risk-free interest rate, as the significant assumption.
Regardless of the historic method used to determine fair value for an indefinite-lived intangible asset, it is
important to remember that the determination of fair value is based on a market participant concept.
The FASB acknowledged that applying the qualitative assessment may be challenging for indefinite-lived
intangible assets subject to significant uncertainties that are out of a company’s control, such as regulatory
approval. These assets were not excluded from the scope of the guidance because the qualitative assessment
is optional, and there may be circumstances when the assessment would be appropriate. See section
2.3.2.1.1.6 for additional considerations for performing a qualitative assessment for an IPR&D asset.
2.3.2.1.1.3 Identify events and circumstances
Identify Text
Determine the
starting point
drivers of circumstances factors
fair value
Once a company has determined its starting point and identified the most relevant drivers of fair value,
it should identify and evaluate the events and circumstances that may have an effect on the fair value of its
indefinite-lived intangible asset. The events and circumstances to be evaluated likely will include some of those
outlined in ASC 350-30-35-18B, but also could include others. It is important to note that the qualitative
assessment is not just a review of events that transpired during the current year; it’s a cumulative analysis
of all events and circumstances since the last time the indefinite-lived intangible’s fair value was determined.
When identifying events and circumstances, a company should consider its disclosures in the business,
risk factors and accounting policies sections of its annual report and other public filings. The assumptions
a company uses in its qualitative assessment should be consistent with statements it has made to the
public about the future of the business and with the projected financial information provided to its board
of directors and other stakeholders. Companies also should consider information that has not yet been
disclosed publicly, such as pending litigation or plans to enter new service lines or exit existing lines.
2.3.2.1.1.4 Weigh the identified factors
Identify Text
Determine the
starting point
fair value
After identifying the events and circumstances that most affect the fair value of an indefinite-lived intangible
asset, a company must weigh all factors in their totality to determine whether they support a qualitative
conclusion that the asset is not impaired.

Companies should focus their qualitative assessments on the factors that most affect fair value. Using
the most recent fair value determination as the starting point and focusing on cumulative changes in
events and circumstances would indicate how a current-period fair value determination would compare
with the last quantitative impairment test. Professional judgment must be applied to appropriately
evaluate how positive and negative events and circumstances, as a whole, affect the significant inputs
used to determine the fair value of an indefinite-lived intangible asset.
As previously discussed, the starting point for a qualitative assessment should be reviewing the most
recent fair value determination and assessing the sensitivity of the difference between fair value and
carrying amount based not only on recent events, but a cumulative analysis of all events and circumstances
since the last time the indefinite-lived intangible’s fair value was determined. The larger the margin, the
easier it may be to come to a conclusion about the asset’s fair value using the qualitative assessment.
Conversely, the smaller the margin, the stronger the supporting evidence and the more robust the
documentation likely would need to be to qualitatively conclude that it is more likely than not that the
asset is not impaired. Similarly, companies should remember that as time passes from the date of the
most recent fair value calculation, the less relevant that fair value calculation becomes.
Because the concept of fair value is quantitative (i.e., its end result is a value), a company might consider
corroborating its qualitative conclusion with a quantitative analysis that is not necessarily a full quantitative
fair value determination.
For example, to help support certain qualitative assertions about fair value using a relief from royalty method,
a company could perform a high-level quantitative calculation that shows how far the assumed royalty
rate would have to decrease before it would imply that the indefinite-lived intangible asset was impaired.
Another example would be to update the most recent fair value determination with current prospective
financial information to determine the sensitivity of the other significant inputs. However, it is important
to remember that the qualitative assessment requires consideration of all facts and circumstances.
While it may be straightforward to determine the effect of an individual event or circumstance, weighing
various factors against each other will require additional judgment. Due to the complexities of determining
fair value (under any method), weighing the factors that could affect fair value could become challenging
without some sort of sensitivity analysis to help quantify the effect of those factors that most affect fair value.
See section 3.1.1.2.4.1 (before the adoption of ASU 2017-04) or section 3A.1.1.2.4.1 (after the adoption
of ASU 2017-04) for further discussion on evaluating the margin between excess fair value over carrying
amount in the most recent calculation and the level of current-year documentation required.
2.3.2.1.1.5 Conclude
Identify Text
Determine the
starting point
fair value
The final step is to conclude whether the asset is impaired. If a company concludes based on the qualitative
assessment that it is more likely than not that an indefinite-lived intangible asset is impaired, it must
quantitatively determine the fair value.
Companies will need to apply significant judgment to conclude that an indefinite-lived intangible asset is not
impaired based on the qualitative assessment. Such analyses should be supported by clear documentation
of the factors considered, including any necessary quantitative calculations. Depending on the complexity

of the indefinite-lived intangible asset, a company also may require assistance from valuation specialists.
Developing clear, contemporaneous documentation also will help a company support its conclusions if
regulators raise questions.
2.3.2.1.1.6 Additional considerations for performing a qualitative assessment for an IPR&D asset
As noted in section 2.3.2.1.1.2, the Board acknowledged that it may be difficult to apply the qualitative
assessment to assets that are subject to significant uncertainties (such as IPR&D assets). Companies that
are considering applying the qualitative assessment for an IPR&D asset should evaluate the relevant
events and circumstances to determine whether they can support a positive assertion that it is not more
likely than not that the indefinite-lived intangible asset is impaired.
Because the list of events and circumstances included in ASC 350-30-35-18C is not all-inclusive, companies
should consider other relevant events and circumstances that could affect the significant inputs used to
determine the fair value of the indefinite-lived intangible asset. If a company chooses to perform a qualitative
assessment for an indefinite-lived IPR&D asset, in addition to the examples of events and circumstances
listed in ASC 350, the existence of the following adverse events and circumstances could affect the
significant inputs used to determine the fair value of an indefinite-lived IPR&D asset and should be
considered in determining whether it is more likely than not that the indefinite lived IPR&D asset is impaired:
• Development of a competing drug (generic or branded), product or technology
• Changes in the legal framework covering patents, rights or licenses
• Change in the economic lives of similar assets
• A decision to postpone or delay the development of the IPR&D project
• Regulatory or other developments that could cause either delays in getting the developed product to
market or significant additional costs to be incurred (for example, in the case of the life sciences
industry, a requirement to conduct additional clinical trials)
• An increase in the projected technological risk of completion for the IPR&D project
• A decrease in the projected technological contribution of the IPR&D project to the overall future
product, if the IPR&D project is a component of it
• A decrease in the projected market size for the developed product, reflected by a downward revision
to the projected revenue or operating margin for the developed product (for example, in the case of
the life sciences industry, indications that the potential patient population may be significantly
smaller than originally anticipated)
In addition to the factors above, entities in the life sciences industry should consider:
• Failure of the drug’s efficacy after a mutation in the disease that it is supposed to treat
• Advances in medicine or technology, or both, that affect the medical treatments
• Changes in anticipated pricing or third-party payer reimbursement that cause a significant change to
expected revenues
Entities in the software and electronic device industries should also consider overall changes in their
plans for existing, in-process and future products.
Similar to the guidance in ASC 350, this list of events and circumstances is not all-inclusive. All relevant
events and circumstances that could affect the significant inputs used to determine the fair value of an
IPR&D asset should be considered when performing a qualitative assessment.

We believe that the qualitative assessment may be used with greater frequency when the IPR&D project
is nearing successful completion or is completed successfully and the asset is tested for impairment one
last time as an indefinite-lived intangible asset. In such situations, the uncertainty previously associated
with the asset likely will have been reduced or eliminated.
2.3.2.2 Order of impairment testing (updated July 2021)

Sometimes an indefinite-lived intangible asset, long-lived assets to be held and used (including finite-lived
intangible assets), and the goodwill of the reporting unit in which those assets reside may all need to be tested
for impairment at the same time (e.g., due to an impairment indicator that affects all of them). In that
scenario, the indefinite-lived intangible asset is tested for impairment in accordance with ASC 350-30 first,
then the long-lived asset group is tested for impairment in accordance with ASC 360 and goodwill is tested for
impairment at the reporting unit level in accordance with ASC 350-20 last. The reason the order is important
is because the impairment test of long-lived asset groups under ASC 360 and goodwill under ASC 350-20 is
dependent on the carrying amounts of the underlying assets first being properly adjusted for impairment.
The graphic below summarizes the order in which assets generally need to be tested for impairment and
the frequency of those tests.
See section 3.7 (before the adoption of ASU 2017-04) or section 3A.7 (after the adoption of ASU 2017-
04) for more discussion on the ordering of impairment tests. See sections 3.5 (before the adoption of
ASU 2017-04) and 3A.5 (after the adoption of ASU 2017-04) for additional guidance on the frequency
of goodwill impairment tests. See our FRD, Impairment or disposal of long-lived assets, for additional
guidance on the impairment testing for long-lived assets to be held and used.
When an asset group is held for sale, the order of impairment testing differs. Refer to sections 2.3.1.4
and 4.2.3.2 of our FRD, Impairment or disposal of long-lived assets, for further discussion.
2.3.2.3 Impairment testing of recently acquired indefinite-lived intangible assets

There is no requirement to test an indefinite-lived intangible asset for impairment on the date of acquisition.
For the same reasons discussed in section 3.11.4 (before the adoption of ASU 2017-04) or section
3A.11.4 (after the adoption of ASU 2017-04) on impairment testing of recently acquired goodwill, an
entity should test an acquired indefinite-lived intangible asset for impairment if impairment indicators exist
subsequent to the acquisition date. In addition, if the annual impairment assessment date follows shortly after
an acquisition, an indefinite-lived intangible asset impairment test should be performed irrespective of the
status of the accounting for the business combination (i.e., whether the measurement period has closed).

2.3.2.4 Impairment considerations for acquired outlicensed arrangements that are classified as
IPR&D assets
In the life sciences industry, it is common for an acquirer to acquire an outlicensing arrangement in a
business combination. Under the terms of the outlicensing arrangement, the target and a third party
would have agreed to jointly develop, manufacture, distribute and sell a drug candidate. Typically, the
target would have received an up-front payment from the third party and would be entitled to future
milestone payments and royalty payments if the drug is ultimately approved for commercialization (i.e.,
FDA approval). If the acquirer will play an active role in the future development of the outlicensed asset
after the acquisition, the acquirer would record the asset as an IPR&D asset in the business combination.
Further, the IPR&D asset would be valued under an income approach considering all anticipated cash flows.
For additional guidance on accounting for acquired IPR&D assets in a business combination, see section 4.2.6
of our FRD, Business combinations. In such situations, companies should be aware that the receipt of a
significant milestone payment could potentially trigger an interim impairment charge. Illustration 2-7
below demonstrates this:
Illustration 2–7: Effect of achieving a technical milestone on impairment test of an indefinite-

lived IPR&D asset
On 15 April 20X2, Company A acquired Company B. As of the acquisition date, Company B had an
existing outlicensing arrangement with a third party. Company A intends to play an active role in the
development of that outlicensed asset (i.e., a drug candidate) and, therefore, records the asset as an
indefinite-lived IPR&D asset (rather than a finite-lived contract-based intangible asset). The terms of
the outlicensing arrangement provided for the third party to make payments to Company B upon the
achievement of certain development milestones, along with royalty payments based on commercial
sales of the drug candidate after regulatory approval. At the acquisition date, receipt of the anticipated
payments associated with the outlicensed project were considered in the valuation and, therefore,
increased the expected future cash flows that were considered in estimating the fair value of the
IPR&D asset. On 30 July 20X2 (before Company A’s impairment testing date), Company B receives a
significant milestone payment from the third party for the achievement of one development milestone
for this drug candidate.
Analysis:
Assuming there are no other developments that could mitigate the resulting decline in the anticipated
cash inflows (e.g., a reduction in anticipated cash outflows, increase in the project’s probability of
success), the fair value of the outlicensed IPR&D asset likely would decline. Company A would have to
evaluate whether the achievement of the development milestone and receipt of the payment makes it
more likely than not that the fair value of the outlicensed IPR&D asset is less than the asset’s carrying
amount, which would lead to an impairment loss.
2.3.3 Unit of accounting

350-30-35-21
Separately recorded indefinite-lived intangible assets, whether acquired or internally developed, shall
be combined into a single unit of accounting for purposes of testing impairment if they are operated as
a single asset and, as such, are essentially inseparable from one another.

350-30-35-22
Determining whether several indefinite-lived intangible assets are essentially inseparable is a matter of
judgment that depends on the relevant facts and circumstances. The indicators in paragraph 350-30-
35-23 shall be considered in making that determination. None of the indicators shall be considered
presumptive or determinative.
350-30-35-23
Indicators that two or more indefinite-lived intangible assets shall be combined as a single unit of
accounting for impairment testing purposes are as follows:
a. The intangible assets were purchased in order to construct or enhance a single asset (that is, they
will be used together).
b. Had the intangible assets been acquired in the same acquisition they would have been recorded
as one asset.
c. The intangible assets as a group represent the highest and best use of the assets (for example, they
yield the highest price if sold as a group). This may be indicated if it is unlikely that a substantial portion
of the assets would be sold separately or the sale of a substantial portion of the intangible assets
individually would result in a significant reduction in the fair value of the remaining assets as a group.
d. The marketing or branding strategy provides evidence that the intangible assets are
complementary, as that term is used in paragraph 805-20-55-18.
350-30-35-24
Indicators that two or more indefinite-lived intangible assets shall not be combined as a single unit of
accounting for impairment testing purposes are as follows:
a. Each intangible asset generates cash flows independent of any other intangible asset (as would be
the case for an intangible asset licensed to another entity for its exclusive use).
b. If sold, each intangible asset would likely be sold separately. A past practice of selling similar
assets separately is evidence indicating that combining assets as a single unit of accounting may
not be appropriate.
c. The entity has adopted or is considering a plan to dispose of one or more intangible assets separately.
d. The intangible assets are used exclusively by different asset groups (see the Impairment or
Disposal of Long-Lived Assets Subsections of Subtopic 360-10).
e. The economic or other factors that might limit the useful economic life of one of the intangible
assets would not similarly limit the useful economic lives of other intangible assets combined in
the unit of accounting.
350-30-35-26
All of the following shall be included in the determination of the unit of accounting used to test
indefinite-lived intangible assets for impairment:
a. The unit of accounting shall include only indefinite-lived intangible assets — those assets cannot
be tested in combination with goodwill or with a finite-lived asset.
b. The unit of accounting cannot represent a group of indefinite-lived intangible assets that
collectively constitute a business or a nonprofit activity.
c. A unit of accounting may include indefinite-lived intangible assets recorded in the separate
financial statements of consolidated subsidiaries. As a result, an impairment loss recognized in
the consolidated financial statements may differ from the sum of the impairment losses (if any)
recognized in the separate financial statements of those subsidiaries.

d. If the unit of accounting used to test impairment of indefinite-lived intangible assets is contained
in a single reporting unit, the same unit of accounting and associated fair value shall be used for
purposes of measuring a goodwill impairment loss in accordance with paragraphs 350-20-35-9
through 35-18.
Pending Content:
350-30-35-26
All of the following shall be included in the determination of the unit of accounting used to test
indefinite-lived intangible assets for impairment:
a. The unit of accounting shall include only indefinite-lived intangible assets — those assets cannot
be tested in combination with goodwill or with a finite-lived asset.
b. The unit of accounting cannot represent a group of indefinite-lived intangible assets that
collectively constitute a business or a nonprofit activity.
c. A unit of accounting may include indefinite-lived intangible assets recorded in the separate
financial statements of consolidated subsidiaries. As a result, an impairment loss recognized in
the consolidated financial statements may differ from the sum of the impairment losses (if any)
recognized in the separate financial statements of those subsidiaries.
d. Subparagraph superseded by Accounting Standards Update No. 2017-04.
350-30-35-27
If, based on a change in the way in which intangible assets are used, an entity combines as a unit of
accounting for impairment testing purposes indefinite-lived intangible assets that were previously
tested for impairment separately, those intangible assets shall be separately tested for impairment in
accordance with paragraphs 350-30-35-18 through 35-20 prior to being combined as a unit of accounting.
In reaching a consensus on EITF 02-7, which was codified into the preceding excerpts from ASC 350, the
EITF agreed that indefinite-lived intangible assets, whether acquired or internally developed, “should be
combined into a single unit of accounting for purposes of testing impairment if they are operated as a
single asset and, as such, are essentially inseparable from one another.” The determination of whether
indefinite-lived intangible assets are “essentially inseparable” from one another will require judgment
based on all relevant facts and circumstances. ASC 350-30-35-23 includes a list of indicators to aid in
making that determination. None of the indicators should be considered presumptive or determinative.
ASC 350-30-35-26 also provides general observations of the unit of accounting for indefinite-lived
intangible assets. The conclusion to aggregate multiple indefinite-lived intangible assets into a single
accounting unit is not a one-time evaluation. Rather, it is subject to reconsideration and may change
depending on the facts and circumstances.
If a company determines that it may combine into a single unit of accounting two or more indefinite-lived
intangible assets that were previously tested for impairment separately, the company first tests those
intangible assets separately for impairment in accordance with ASC 350-30-35-18 through 35-20.
The following examples illustrate the determination of the unit of accounting to use in impairment testing
for indefinite-lived intangible assets.


Intangibles — Goodwill and Other — General Intangibles Other Than Goodwill
Example 10: Easements
350-30-55-29
This Example illustrates the guidance in paragraphs 350-30-35-21 through 35-24.
350-30-55-30
Entity A is a distributor of natural gas. Entity A has two self-constructed pipelines, the Northern pipeline
and the Southern pipeline. Each pipeline was constructed on land for which Entity A owns perpetual
easements. The Northern pipeline was constructed on 50 easements acquired in 50 separate
transactions. The Southern pipeline was constructed on 100 separate easements that were acquired in a
business combination and were recorded as a single asset. Although each pipeline functions
independently of the other, they are contained in the same reporting unit. Operation of each pipeline is
directed by a different manager. There are discrete, identifiable cash flows for each pipeline; thus, each
pipeline and its related easements represent a separate asset group under the Impairment or Disposal of
Long-Lived Assets Subsections of Subtopic 360-10. While Entity A has no current plans to sell or
otherwise dispose of any of its easements, Entity A believes that if either pipeline was sold, it would most
likely convey all rights under the easements with the related pipeline.
Pending Content:
350-30-55-30
Entity A is a distributor of natural gas. Entity A has two self-constructed pipelines, the Northern pipeline
and the Southern pipeline. Each pipeline was constructed on land for which Entity A owns perpetual
easements that Entity A evaluated under Topic 842 and determined do not meet the definition of a
lease under that Topic (because those easements are perpetual and, therefore, do not convey the right
to use the underlying land for a period of time). The Northern pipeline was constructed on 50 easements
acquired in 50 separate transactions. The Southern pipeline was constructed on 100 separate
easements that were acquired in a business combination and were recorded as a single asset. Although
each pipeline functions independently of the other, they are contained in the same reporting unit.
Operation of each pipeline is directed by a different manager. There are discrete, identifiable cash flows
for each pipeline; thus, each pipeline and its related easements represent a separate asset group under
the Impairment or Disposal of Long-Lived Assets Subsections of Subtopic 360-10. While Entity A has no
current plans to sell or otherwise dispose of any of its easements, Entity A believes that if either pipeline
was sold, it would most likely convey all rights under the easements with the related pipeline.
350-30-55-31
Based on an evaluation of the circumstances, Entity A would have two units of accounting for
purposes of testing the easements for impairment — the collection of easements supporting the
Northern pipeline and the collection of easements supporting the Southern pipeline. The 50
easements supporting the Northern pipeline represent a single unit of accounting as evidenced by the
fact that they are collectively used together in a single asset group (see paragraphs 360-10-35-23
through 35-26), if acquired in a single transaction, they would have been recorded as one asset, and if
sold, they would likely be sold as a group with the related pipeline. For the same reasons, the
easements supporting the Southern pipeline would represent a single unit of accounting.

350-30-55-32
Because the collective land easements underlying the Northern and Southern pipelines generate cash
flows independent of one another and are used exclusively by separate asset groups under the
Impairment or Disposal of Long-Lived Assets Subsections of Subtopic 360-10, they should not be
combined into a single unit of accounting.
Illustration 2–8: Trade name
Company Y purchases an international vacuum cleaner manufacturer, Company A, which sells vacuums
under a well-known trade name. The operations of Company A are conducted through separate legal entities
in three different countries with each of those legal entities owning the registered trade name used in that
country. When the business combination was recorded, Company Y recorded three separate intangible trade
name assets because separate financial statements are required to be prepared for each separate legal
entity. There are separate identifiable cash flows for each country, and each country represents an asset
group under ASC 360-10. A single brand manager is responsible for the Company A trade name, the
value of which is expected to be recovered from the worldwide sales of Company A’s products.
Analysis:
The three separately recorded trade name assets should be combined into a single unit of accounting
for purposes of testing the acquired trade name for impairment. The three registered trade names
were acquired in the same business combination and, absent the requirement to prepare separate
financial statements for subsidiaries, would have been recorded as a single asset. The trade name is
managed by a single brand manager. If sold, Company Y would most likely sell all three legally registered
trade names as a single asset.
Illustration 2–9: Brands
Company Z manufactures and distributes cereals under two different brands, Brand A and Brand B.
Both brands were acquired in the same business combination. Company Z recorded two separate
intangible assets representing Brand A and Brand B. Each brand represents a group of complementary
indefinite-lived intangible assets including the trademark, the trade dress and a recipe. Brand A has
two underlying trade names for its Honey and Cinnamon cereals. The trade name and recipe of
Cinnamon were internally generated subsequent to the acquisition of Brand A.
Sales of Honey have decreased while sales of Cinnamon have increased over the past several years.
Despite the decline in sales of Honey, the combined sales of Honey and Cinnamon have increased at
the levels expected by management. Sales of Brand B also have increased at expected levels. There
are discrete cash flows for Honey, Cinnamon and Brand B, and each represents a separate asset group
under ASC 360-10. Both Honey and Cinnamon are managed by one brand manager. A separate brand
manager is responsible for Brand B; however, there are some shared resources used by these groups,
such as procurement. While Company Z has no current plans to sell its brands or exit the cereal
business, it believes if it ever did, it would exit the cereal business in its entirety.
Analysis:
Company Z would have two units of accounting for purposes of testing the acquired brands for
impairment. Brand A’s purchased Honey and internally generated Cinnamon trademarks should be
combined as a single unit of accounting for purposes of impairment testing. The intangible asset
associated with the Cinnamon trademark is simply a variation of the previously acquired Brand A
Honey trademark. Although they are associated with different asset groups under ASC 360-10, they
are managed by a single brand manager. Company Z would consider Brand B to be a separate unit of
accounting for purposes of testing impairment because that brand is managed separately from Brand
A and is used exclusively by a separate asset group under ASC 360-10.

2.3.3.1 Allocating an impairment loss to an indefinite-lived intangible asset when removing the
asset from a single accounting unit
As noted above, the EITF agreed that indefinite-lived intangible assets, whether acquired or internally
developed, “should be combined into a single unit of accounting for purposes of testing impairment if they
are operated as a single asset and, as such, are essentially inseparable from one another.” An indefinite-
lived intangible asset may need to be removed from the accounting unit if it is disposed of, the accounting
unit is reconsidered or one or more of the separate indefinite-lived intangible asset(s) within the accounting
unit is now considered finite-lived rather than indefinite-lived. There is no specific guidance10 regarding
how to determine the carrying amount of an indefinite-lived intangible asset when it is removed from the
accounting unit that had previously recognized an impairment charge.
Without specific guidance, we believe that the carrying amount of the indefinite-lived intangible asset
removed from the accounting unit should be based on the historical carrying amount when the asset was
placed into the accounting unit, less the allocation of any impairment recognized by the accounting unit.
The allocation of any impairment loss should be based on a pro rata basis using the relative historical
carrying amount of the individual indefinite-lived intangible assets. If the historical carrying amount of the
indefinite-lived intangible asset is not readily available, the entity should establish a reasonable and
supportable method to determine the historical carrying amount at the time of removal of the asset.
Because under ASC 350-30, accounting units are created solely for impairment testing purposes, the
individual indefinite-lived intangible assets remain as separately recorded assets. This approach is
consistent with that described in ASC 360-10-35-28 for the allocation of an impairment loss to individual
long-lived assets within an asset group.
Illustration 2–10: Allocation of an indefinite-lived intangible asset impairment loss
XYZ Corp has grouped four licenses (A, B, C and D) in an accounting unit for impairment purposes
based on the requirements in ASC 350. XYZ Corp has no past practice of selling licenses separately.
Licenses A and B were acquired together and were valued at $200 and $250, respectively. License C
was acquired for $150 and License D was acquired for $400 in two separate transactions.
Assume that, subsequent to the acquisition of the licenses, XYZ Corp recorded an impairment charge
of $100 related to the accounting unit. Assume that License B was sold separately.
Analysis:
In this case, the carrying amount of the license sold (License B) would be determined as follows:
License B’s pro rata allocation of impairment loss of $25 [($250/$1000) x $100] would be subtracted
from its original carrying amount of $250. This results in a carrying amount of the license sold of $225.
10
The EITF Agenda Committee Report dated 29–30 September 2004 acknowledged that the EITF considered adding to its agenda a
discussion on how to determine the carrying amount of an intangible asset that previously was combined with other indefinite-lived
intangible assets for impairment purposes. The Agenda Committee, however, decided not to add this issue to the EITF’s agenda.

2.4 Useful life of an acquired intangible asset that will not be fully utilized (defensive
intangible asset)
350-30-35-5A
This guidance addresses the application of paragraphs 350-30-35-1 through 35-4 to a defensive
intangible asset other than an intangible asset that is used in research and development activities. A
defensive intangible asset shall be assigned a useful life that reflects the entity's consumption of the
expected benefits related to that asset. The benefit a reporting entity receives from holding a
defensive intangible asset is the direct and indirect cash flows resulting from the entity preventing
others from realizing any value from the intangible asset (defensively or otherwise). An entity shall
determine a defensive intangible asset's useful life, that is, the period over which an entity consumes
the expected benefits of the asset, by estimating the period over which the defensive intangible asset
will diminish in fair value. The period over which a defensive intangible asset diminishes in fair value is
a proxy for the period over which the reporting entity expects a defensive intangible asset to
contribute directly or indirectly to the future cash flows of the entity.
350-30-35-5B
It would be rare for a defensive intangible asset to have an indefinite life because the fair value of the
defensive intangible asset will generally diminish over time as a result of a lack of market exposure or
as a result of competitive or other factors. Additionally, if an acquired intangible asset meets the
definition of a defensive intangible asset, it shall not be considered immediately abandoned.

350-30-55-1B
The determination of whether an intangible asset is a defensive intangible asset is based on the
intentions of the reporting entity and that determination may change as the reporting entity's
intentions change. For example, an intangible asset that was accounted for as a defensive intangible
asset on the date of acquisition will cease to be a defensive asset if the entity subsequently decides to
actively use the asset. Examples 9C and 9D (see paragraphs 350-30-55-28G through 55-28L)
illustrate the determination of whether an acquired intangible asset is a defensive intangible asset.
Assets acquired in a business combination must be measured at fair value using market participant (not
entity specific) assumptions in accordance with ASC 805 and ASC 820. This includes defensive intangible
assets, which are assets that the acquirer does not intend to actively use but intends to hold to prevent
others from obtaining access to that asset. A defensive intangible asset could include any of the following:
• An asset that the entity will never actively use
• An asset that will be used by the entity during a transition period when the intention of the entity is
to discontinue the use of the asset
In a business combination, an acquirer must recognize at fair value all acquired intangible assets,
including those it intends to hold for defensive purposes. Similarly, defensive intangible assets acquired
in asset acquisitions will be recognized based on their relative fair values at acquisition.
An issue arises in determining the appropriate unit of account and the appropriate useful life for defensive
intangible assets. ASC 350-30 provides guidance on the subsequent accounting for defensive intangible
assets and requires an entity to assign a useful life in accordance with ASC 350-30-35-1 through 35-5.

The EITF, in reaching a consensus on EITF 08-7 (codified in ASC 350-30), concluded that intangible assets
that an acquirer intends to use as defensive assets are a separate unit of account from the existing
intangible assets of the acquirer. The EITF also concluded that a defensive intangible asset should be
amortized over the period it is expected to contribute directly or indirectly to the entity’s future cash
flows. That period is the period that the asset provides significant value to the reporting entity, but would
not extend beyond the date the reporting entity effectively waives its rights to the intangible asset (i.e., is
not using the asset, either directly or defensively).
This does not preclude the acquirer from assigning an indefinite life to the defensive intangible asset;
however, the EITF concluded that the assignment of an indefinite life to a defensive intangible asset likely
would be rare. In reaching its conclusion, the EITF stated that the acquirer’s intention to not actively use
the intangible asset, but instead to maintain it for defensive purposes, is a form of use of the intangible
asset. Additionally, if an acquired intangible asset meets the definition of a defensive intangible asset, it
cannot be considered immediately abandoned.
We believe that in practice it may prove difficult to estimate the period over which the fair value of the
defensive intangible asset diminishes. The process of estimating the useful life of defensive intangible
assets will require close collaboration with valuation professionals.
2.5 Transfer or sale of intangible assets (updated May 2022)

Derecognition
350-10-40-1
An entity shall account for the derecognition of a nonfinancial asset, including an in substance
nonfinancial asset, within the scope of this Topic in accordance with Subtopic 610-20 on gains and losses
from the derecognition of nonfinancial assets, unless a scope exception from Subtopic 610-20 applies.
For example, the derecognition of a nonfinancial asset in a contract with a customer shall be accounted
for in accordance with Topic 606 on revenue from contracts with customers.
350-10-40-2
An entity shall account for the derecognition of a subsidiary or a group of assets that is either a business
or nonprofit activity in accordance with the derecognition guidance in Subtopic 810-10.
350-10-40-3
If an entity transfers a nonfinancial asset in accordance with paragraph 350-10-40-1, and the contract
does not meet all of the criteria in paragraph 606-10-25-1, the entity shall not derecognize the
nonfinancial asset and shall follow the guidance in paragraphs 606-10-25-6 through 25-8 to determine if
and when the contract subsequently meets all of the criteria in paragraph 606-10-25-1. Until all of the
criteria in paragraph 606-10-25-1 are met, the entity shall continue to do all of the following:
a. Report the nonfinancial asset in its financial statements
b. Recognize amortization expense as a period cost for those assets with a finite life
c. Apply the impairment guidance in Section 350-30-35.
350-10-40-4
Additionally, see the derecognition guidance in Section 350-20-40 regarding the disposal of all or a
portion of a reporting unit.

An entity accounts for the derecognition of a nonfinancial asset (and an in substance nonfinancial asset)
within the scope of ASC 350 in accordance with ASC 610-20, unless a scope exception applies. An entity
accounts for the derecognition of a subsidiary or a group of assets that is either a business or nonprofit
activity in accordance with the derecognition guidance in ASC 810-10.
If an entity transfers a nonfinancial asset in accordance with ASC 350-10-40-1, and the contract does
not meet all of the criteria in ASC 606-10-25-1, the entity does not derecognize the nonfinancial asset
and follows the guidance in ASC 606-10-25-6 through 25-8 to determine if and when the contract
subsequently meets all of the criteria in ASC 606-10-25-1. Until all of the criteria in ASC 606-10-25-1
are met, the entity continues to do all of the following:
• Report the nonfinancial asset in its financial statements
• Recognize amortization expense as a period cost for those assets with a finite life
• Apply the impairment guidance in ASC 350-30-35
See section 3.14 (before the adoption of ASU 2017-04) and section 3A.14 (after the adoption of ASU 2017-04)
for guidance on the disposal of all or a portion of a reporting unit. Refer to our FRD, Gains and losses from
the derecognition of nonfinancial assets (ASC 610-20), for further information on the derecognition of a
nonfinancial asset or an in substance nonfinancial asset, and see section 19 of our FRD, Consolidation,
for further information on the derecognition of a subsidiary or a group of assets that is either a business
or nonprofit activity.

3 Subsequent accounting for goodwill
(before the adoption of ASU 2017-04)
3.1 Measurement and recognition of goodwill impairment

Overall Accounting for Goodwill
350-20-35-1
Goodwill shall not be amortized. Instead, goodwill shall be tested for impairment at a level of reporting
referred to as a reporting unit. (Paragraphs 350-20-35-33 through 35-46 provide guidance on
determining reporting units.)
350-20-35-2
Impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair
value. The fair value of goodwill can be measured only as a residual and cannot be measured directly.
Therefore, this Subtopic includes a methodology to determine an amount that achieves a reasonable
estimate of the value of goodwill for purposes of measuring an impairment loss. That estimate is
referred to as the implied fair value of goodwill.
350-20-35-3
An entity may first assess qualitative factors, as described in paragraphs 350-20-35-3A through 35-3G,
to determine whether it is necessary to perform the two-step goodwill impairment test discussed in
paragraphs 350-20-35-4 through 35-19. If determined to be necessary, the two-step impairment test
shall be used to identify potential goodwill impairment and measure the amount of a goodwill
impairment loss to be recognized (if any).
ASU 2017-04 eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of
today’s goodwill impairment test) to measure a goodwill impairment charge. Instead, entities will record
an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value
(i.e., measure the charge based on today’s Step 1). See section 3A for guidance on the subsequent
accounting for goodwill after the adoption of ASU 2017-04.
Under ASC 805, goodwill is recognized initially as an asset in the financial statements and is initially
measured as any excess of the acquisition-date amounts11 of the consideration transferred, any
noncontrolling interest and any equity interest previously held by the acquirer in the acquiree over the
acquisition-date amounts of the net identifiable assets acquired. Any acquired intangible assets that do not
meet the criteria for recognition as a separate asset are included in goodwill. For further information,
please refer to our FRD, Business combinations. ASC 350-20 addresses the subsequent accounting for
11
Generally, business combination accounting under ASC 805 requires all consideration transferred, any noncontrolling interest,
any previously held equity interests and assets acquired and liabilities assumed to be measured at their acquisition-date fair values,
subject to limited exceptions. Refer to our FRD, Business combinations, for additional guidance on accounting for business combinations.

3 Subsequent accounting for goodwill (before the adoption of ASU 2017-04)
goodwill, including the requirement that goodwill should not be amortized but should be tested for
impairment, at least annually, at a level within the company referred to as the reporting unit. Goodwill
cannot be tested for impairment at any level within the company other than the reporting unit level.
ASC 350-20 outlines the methodology used to determine if goodwill has been impaired and to measure any
loss resulting from an impairment. These requirements are discussed in detail in the following sections.

Recognition and Measurement of an Impairment Loss
Qualitative Assessment
350-20-35-3A
An entity may assess qualitative factors to determine whether it is more likely than not (that is, a
likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying
amount, including goodwill.
350-20-35-3B
An entity has an unconditional option to bypass the qualitative assessment described in the preceding
paragraph for any reporting unit in any period and proceed directly to performing the first step of the
goodwill impairment test. An entity may resume performing the qualitative assessment in any
subsequent period.
Step 1
350-20-35-4
The first step of the goodwill impairment test, used to identify potential impairment, compares the fair
value of a reporting unit with its carrying amount, including goodwill.
350-20-35-5
The guidance in paragraphs 350-20-35-22 through 35-24 shall be considered in determining the fair
value of a reporting unit.
350-20-35-6
If the carrying amount of a reporting unit is greater than zero and its fair value exceeds its carrying
amount, goodwill of the reporting unit is considered not impaired; thus, the second step of the
impairment test is unnecessary. If the carrying amount of the reporting unit is zero or negative, the
guidance in paragraph 350-20-35-8A shall be followed.
350-20-35-8
If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill
impairment test shall be performed to measure the amount of impairment loss, if any.
Step 2
350-20-35-9
The second step of the goodwill impairment test, used to measure the amount of impairment loss,
compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill.

350-20-35-10
The guidance in paragraphs 350-20-35-14 through 35-17 shall be used to estimate the implied fair
value of goodwill.
350-20-35-11
If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an
impairment loss shall be recognized in an amount equal to that excess. The loss recognized cannot
exceed the carrying amount of goodwill.
350-20-35-12
After a goodwill impairment loss is recognized, the adjusted carrying amount of goodwill shall be its
new accounting basis.
350-20-35-13
Subsequent reversal of a previously recognized goodwill impairment loss is prohibited once the
measurement of that loss is recognized.
Determining the Implied Fair Value of Goodwill

350-20-35-14
The implied fair value of goodwill shall be determined in the same manner as the amount of goodwill
recognized in a business combination or an acquisition by a not-for-profit entity was determined.
That is, an entity shall assign the fair value of a reporting unit to all of the assets and liabilities of that
unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a
business combination or an acquisition by a not-for-profit entity. Throughout this Section, the term
business combination includes an acquisition by a not-for-profit entity.
350-20-35-15
The relevant guidance in Subtopic 805-20 shall be used in determining how to assign the fair value of
a reporting unit to the assets and liabilities of that unit. Included in that allocation would be research
and development assets that meet the criteria in paragraph 350-20-35-39.
350-20-35-16
The excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities is
the implied fair value of goodwill.
350-20-35-17
That assignment process discussed in paragraphs 350-20-35-14 through 35-16 shall be performed
only for purposes of testing goodwill for impairment; an entity shall not write up or write down a
recognized asset or liability, nor shall it recognize a previously unrecognized intangible asset as a
result of that allocation process.

Goodwill should not be amortized, but should be tested for impairment at the reporting unit level at least
annually in accordance with ASC 350-20. Impairment is the condition that exists when the carrying
amount of goodwill exceeds its implied fair value. Goodwill is tested for impairment in accordance with
the following flowchart, taken from ASC 350-20-55-25:
Evaluate relevant events or
circumstances to determine
whether it is more likely than
not that the fair value of a
reporting unit is less than
its carrying amount.1,2
Is it more
Step 1
likely than not that
Yes Calculate the fair value of the
the fair value of the
reporting unit and compare with its
reporting unit is less
carrying amount, including goodwill.
than its carrying
amount?
No Is the fair value

No
of the reporting
unit less than its
carrying amount?
Yes
Step 2
Calculate and compare implied fair
value of reporting unit goodwill with
carrying amount of that goodwill.
Recognize impairment
equal to difference
No Is the implied fair value Yes
between implied fair
Stop of goodwill less than its value of goodwill and
carrying amount? carrying amount of
goodwill.
1
An entity has the unconditional option to skip the qualitative assessment and proceed directly to performing Step 1, except in the
circumstance where a reporting unit has a carrying amount that is zero or negative.
2
An entity having a reporting unit with a carrying amount that is zero or negative would proceed directly to Step 2 if it determines,
as a result of performing its required qualitative assessment, that it is more likely than not that a goodwill impairment exists. To
perform Step 2, an entity must calculate the fair value of a reporting unit.

The implied fair value of goodwill is calculated by deducting the fair value, with certain limited exceptions,
pursuant to the guidance in ASC 80512 (see our FRD, Business combinations, for further discussion), of all
net assets of the reporting unit from its fair value (as determined in Step 1). This includes determining
the fair value of any unrecognized intangible assets (including in-process research and development) and
any applicable corporate level assets or liabilities that had been included in the determination of the
carrying amount and fair value of the reporting unit in Step 1. The remaining fair value of the reporting
unit after assigning amounts to all of the reporting unit’s assets and liabilities represents the implied fair
value of goodwill for the reporting unit. This assignment is performed only for the purpose of measuring
goodwill impairment and should not result in a change in basis of the recognized net assets or in the
recognition of any unrecognized assets of the reporting unit.
The fair value of a reporting unit and the valuation of assets and liabilities required to be measured at fair
value in Step 2 must be consistent with the definition of fair value under ASC 820, and must include both
the controlling and noncontrolling interests in the reporting unit.
3.1.1 Optional qualitative assessment

350-20-35-3C
In evaluating whether it is more likely than not that the fair value of a reporting unit is less than its
carrying amount, an entity shall assess relevant events and circumstances. Examples of such events
and circumstances include the following:
a. Macroeconomic conditions such as a deterioration in general economic conditions, limitations on

credit markets
b. Industry and market considerations such as a deterioration in the environment in which an entity
metrics (consider in both absolute terms and relative to peers), a change in the market for an
entity’s products or services, or a regulatory or political development
c. Cost factors such as increases in raw materials, labor, or other costs that have a negative effect
on earnings and cash flows
d. Overall financial performance such as negative or declining cash flows or a decline in actual or
planned revenue or earnings compared with actual and projected results of relevant prior periods
e. Other relevant entity-specific events such as changes in management, key personnel, strategy, or
f. Events affecting a reporting unit such as a change in the composition or carrying amount of its
net assets, a more-likely-than-not expectation of selling or disposing of all, or a portion, of a
reporting unit, the testing for recoverability of a significant asset group within a reporting unit,
or recognition of a goodwill impairment loss in the financial statements of a subsidiary that is a
component of a reporting unit
12
To the extent the recognition and measurement principles in ASC 805 differ from ASC 350, a different implied fair value of
goodwill may arise.

g. If applicable, a sustained decrease in share price (consider in both absolute terms and relative
to peers).
350-20-35-3D
If, after assessing the totality of events or circumstances such as those described in the preceding
paragraph, an entity determines that it is not more likely than not that the fair value of a reporting unit is less
than its carrying amount, then the first and second steps of the goodwill impairment test are unnecessary.
350-20-35-3E
If, after assessing the totality of events or circumstances such as those described in paragraph 350-
20-35-3C(a) through (g), an entity determines that it is more likely than not that the fair value of a
reporting unit is less than its carrying amount, then the entity shall perform the first step of the two-
step goodwill impairment test.
350-20-35-3F
The examples included in paragraph 350-20-35-3C(a) through (g) are not all-inclusive, and an entity
shall consider other relevant events and circumstances that affect the fair value or carrying amount of
a reporting unit in determining whether to perform the first step of the goodwill impairment test. An
entity shall consider the extent to which each of the adverse events and circumstances identified could
affect the comparison of a reporting unit’s fair value with its carrying amount. An entity should place
more weight on the events and circumstances that most affect a reporting unit’s fair value or the
carrying amount of its net assets. An entity also should consider positive and mitigating events and
circumstances that may affect its determination of whether it is more likely than not that the fair value
of a reporting unit is less than its carrying amount. If an entity has a recent fair value calculation for a
reporting unit, it also should include as a factor in its consideration the difference between the fair
value and the carrying amount in reaching its conclusion about whether to perform the first step of the
goodwill impairment test.
350-20-35-3G
An entity shall evaluate, on the basis of the weight of evidence, the significance of all identified events
and circumstances in the context of determining whether it is more likely than not that the fair value of
a reporting unit is less than its carrying amount. None of the individual examples of events and
circumstances included in paragraph 350-20-35-3C(a) through (g) are intended to represent
standalone events or circumstances that necessarily require an entity to perform the first step of the
goodwill impairment test. Also, the existence of positive and mitigating events and circumstances is
not intended to represent a rebuttable presumption that an entity should not perform the first step of
the goodwill impairment test.
ASC 350 requires companies to test goodwill for impairment annually and more frequently if indicators
of impairment exist. Testing goodwill for impairment requires companies to compare the fair value of a
reporting unit with its carrying amount, including goodwill. ASC 350 also provides for an optional
qualitative assessment for testing goodwill for impairment (qualitative assessment) that may allow
companies to skip the annual two-step test. The qualitative assessment permits companies to assess
whether it is more likely than not (i.e., a likelihood of greater than 50%) that the fair value of a reporting
unit is less than its carrying amount. If a company concludes based on the qualitative assessment that it
is more likely than not that the fair value of a reporting unit is less than its carrying amount, the company
is required to perform the two-step test. If a company concludes based on the qualitative assessment
that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it
has completed its goodwill impairment test and does not need to perform the two-step test.
While the qualitative assessment may change how goodwill impairment testing is performed, it does not
affect the timing or measurement of goodwill impairments.

It is important to understand that the ASC 350 impairment model differs from an other-than-temporary-
impairment model. Under ASC 350, management must analyze the relationship between a reporting unit’s
fair value and its carrying amount as of the impairment test date. This analysis does not include a
determination by management of whether a decline in fair value is temporary.
3.1.1.1 Key considerations

Before the introduction of the qualitative assessment, companies were required to calculate the fair
value of each reporting unit annually and compare that value with its carrying amount, including goodwill
(Step 1). If the calculated fair value was less than the carrying amount, the company would calculate the
implied fair value of the reporting unit’s goodwill to determine the amount of impairment to recognize, if
any (Step 2).
The qualitative assessment gives companies the option to evaluate, based on the weight of evidence, the
significance of all identified events and circumstances in the context of determining whether it is more
likely than not that the fair value of a reporting unit is less than its carrying amount. It does not prescribe
how to weigh positive and negative evidence when both affect the fair value of a reporting unit, nor does
it define the term “significance.”
3.1.1.1.1 Weighing evidence

ASC 350 directs companies to place more weight on the events and circumstances that most affect a
reporting unit’s fair value or the carrying amount of its net assets. Weighing the effect of various positive
and negative factors may be challenging and will require the use of significant judgment. Companies will
have to monitor and evaluate all positive and negative events that have occurred since the most recent
quantitative impairment test.
The qualitative assessment is distinct from other impairment evaluations in that it requires a company to
evaluate all events and circumstances, including both positive and negative events, in their totality to
determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying
amount. Other asset impairment models (e.g., long-lived assets to be held and used (including finite-lived
intangible assets)) do not require weighing positive and negative evidence, but rather require companies
to identify certain interim triggering events.13 A quantitative impairment test is required only if one (or
more) of the triggering events occurred, causing the company to believe that the event(s) indicated that
a potential impairment had arisen (i.e., that it is more likely than not that the fair value of the reporting
unit is less than its carrying amount).
This concept of weighing the effect of various factors may be more difficult and will likely require a more
rigorous evaluation than the previous requirement to identify negative factors.
3.1.1.1.2 Meaning of ‘significant’

The FASB refers to but does not define the concept of “significant” in ASC 350 or in the Basis for
Conclusions of ASU 2011-08. Accordingly, questions have arisen about whether there are any bright-line
rules for performing qualitative assessments (i.e., whether the existence of any particular circumstance
would always — or never — result in the requirement to perform the annual two-step test).
The Board did not establish any bright-line rules or provide an example of events or circumstances that
would always result in the conclusion that a quantitative impairment test is or is not necessary. Similarly,
there are no bright-line rules when using the term significant in other contexts (e.g., evaluating whether the
fair value exceeded the carrying amount by a significant amount in the most recent quantitative impairment
test, evaluating whether a change in an event or circumstance during the period has a significant effect
13
As listed in ASC 350 and ASC 360.

on fair value). Companies will have to evaluate all facts and circumstances to determine whether they
believe, based on all factors, it is more likely than not that the fair value of a reporting unit is less than its
carrying amount.
3.1.1.1.3 List of events and circumstances

ASC 350-20-35-3C includes a list of events and circumstances to consider when evaluating a reporting
unit’s goodwill for impairment. The factors considered for interim impairment evaluations were
developed by the Board to reflect the reasons that companies have disclosed as the causes of goodwill
impairments. The list of events and circumstances is as follows:
• Macroeconomic conditions such as a deterioration in general economic conditions, limitations on

accessing capital, fluctuations in foreign exchange rates or other developments in equity and
credit markets
• Industry and market considerations such as a deterioration in the environment in which an entity
operates, an increased competitive environment, a decline in market-dependent multiples or metrics
(consider in both absolute terms and relative to peers), a change in the market for an entity’s
products or services, or a regulatory or political development
• Cost factors such as increases in raw materials, labor or other costs that have a negative effect on
earnings and cash flows
• Overall financial performance such as negative or declining cash flows or a decline in actual or
• Other relevant entity-specific events such as changes in management, key personnel, strategy or
• Events affecting a reporting unit such as a change in the composition or carrying amount of its net
assets, a more-likely-than-not expectation of selling or disposing all, or a portion, of a reporting unit,
the testing for recoverability of a significant asset group within a reporting unit or recognition of a
goodwill impairment loss in the financial statements of a subsidiary that is a component of a
reporting unit
• A sustained decrease in share price (consider in either absolute terms or relative to peers)
None of the factors listed above is determinative. In other words, the existence of one of these negative
factors by itself would not necessarily indicate that Step 1 of the goodwill impairment test must be
performed. Instead, a company must evaluate how significant each of the identified factors could be to
the fair value or carrying amount of a reporting unit, and weigh those factors against any positive or
mitigating factors relevant to that reporting unit. In addition, ASC 350-20-35-3F states clearly that the
events and circumstances it describes are only examples of factors a company should consider.
Companies will need to identify the factors that most affect a reporting unit’s fair value.
3.1.1.2 Applying the qualitative assessment

While the specific factors that must be evaluated will vary depending on the reporting unit, company and
industry, we generally believe that the framework provided below will be useful for companies if they
choose to apply the qualitative assessment.

3.1.1.2.1 Determine the starting point
Text Identify
fair value
We believe that companies should use the most recent calculation of a reporting unit’s fair value as a
starting point for the qualitative assessment. In doing so, companies should consider the amount of excess
fair value in that calculation as well as developments in its own operations, the industry in which it operates
and overall macroeconomic factors that could have affected fair value since the date of that calculation.
3.1.1.2.1.1 Look at the excess fair value

The margin between the fair value and carrying amount in the most recent fair value calculation may
indicate the amount and severity of negative evidence that can be absorbed by a reporting unit.
However, as noted in section 3.1.1.1.2, there is no percentage threshold that constitutes a significant
amount of excess fair value over carrying amount. Judgment must be applied to evaluate how much
negative evidence may cause a company to conclude that it can no longer make a more-likely-than-not
assertion about the fair value of a reporting unit.
Accordingly, we generally believe that companies that have reporting units whose fair values have
recently exceeded their carrying amounts by significant margins are likely to benefit from the qualitative
assessment. Companies that have recently recognized goodwill impairments or that do not have a
significant margin between the carrying amount and fair value of a reporting unit may find it challenging
to apply the qualitative assessment and may elect to move directly to Step 1.
3.1.1.2.1.2 Consider the market

When companies begin thinking about performing a goodwill impairment evaluation, they often look at
company-specific information, such as current-year and future financial performance. While this
information is crucial for determining whether it is more likely than not that a reporting unit’s fair value is
less than its carrying amount, companies also must consider external factors that could affect the fair
value or carrying amount of their reporting units.
Illustration 3-1: Consider the market
Assume Company A is a public company with a reporting unit (RU) operating in the telecommunications
industry. In its qualitative assessment, Company A determined the following:
• The fair value of RU in the prior year’s quantitative impairment test exceeded its carrying amount
by 22%.
• RU’s revenues and operating margins increased 10% over the prior year and exceeded current-
year projections by 2%.
• RU gained two large customers in the current year, which account for 6% of current-year revenues.

Based on only these facts, Company A may conclude that it does not need to perform a quantitative
impairment test for RU. However, the following also occurred since the last fair value calculation
was performed:
• Overall equity markets are down 10% in the current year.
• RU’s competitors have experienced revenue growth of 15% to 20% over the prior year.
• Despite gaining two large customers, RU still lost 2% market share.
Based on the company-specific information alone, Company A appears to have a sufficient level of
positive evidence to support a qualitative assertion that RU’s goodwill is not impaired. However, once
the industry and market information is considered, the conclusion requires further consideration. With
this negative information (overall market decline, RU growing slower than industry and loss of market
share), it is clear that Company A must perform further analysis to determine the significance that
each of these factors and other relevant information may have on the fair value of RU and weigh such
factors into its qualitative assessment.
Illustration 3-2: Consider the market
Assume the same facts as in Illustration 3-1, except that the industry and market information since the
last fair value calculation was performed is as follows:
• Overall equity markets are up 5% in the current year.
• Other telecom companies operating in RU’s industry experienced revenue and operating margin
growth of 3% to 5% over the prior year.
• The two new customers caused RU’s market share to increase by 10%.
With this predominantly positive industry and market information, and assuming there are no further
negative factors to consider, Company A may have a sufficient level of positive evidence to support a
qualitative assertion that it does not need to perform the annual two-step test.
Weighing the positive and negative events that have occurred since the last fair value calculation may be
difficult, particularly when there are multiple positive and negative factors. Professional judgment must
be applied to all facts and circumstances to appropriately evaluate how such factors, in their totality,
ultimately affect the fair value of a reporting unit.
Question 3.1 At what point can data from the most recent fair value calculation no longer be used to evaluate the
fair value calculation. Generally, the more time that has passed since the last fair value calculation, the
more challenging it may be to support applying the qualitative assessment or arriving at an impairment
conclusion based solely on a qualitative assessment. This is because an entity would need to consider a
cumulative analysis of the changes in events and circumstances since the last quantitative impairment test.

3.1.1.2.1.3 Review changes to carrying amount

Another key aspect of determining the starting point for the qualitative assessment is for companies to
update the carrying amount of their reporting units to reflect the balance as of the testing date, including
allocating corporate assets and intercompany items that should be kept in the calculation for a reporting
unit (and not eliminated). This will provide another relevant data point about the relationship between
each reporting unit’s most recently calculated fair value and the level of effort that would be required to
apply the qualitative assessment. For example, if a reporting unit had a series of smaller acquisitions
since the most recent quantitative impairment test, the increase in the carrying amount could be larger
than if it had been adjusted by normal recurring operations alone.
3.1.1.2.2 Identify the most relevant drivers of fair value
Identify
Text
Determine the
starting point relevant events and identified Conclude
fair value
In order to identify the most relevant drivers of fair value, companies should understand those
assumptions that are most likely to affect the fair value of a reporting unit. In doing so, a company should
understand the valuation method(s) that are appropriate to determine the fair value of each reporting
unit and the assumptions that are most likely to affect each method. As a starting point, companies may
want to consider the valuation method and drivers of fair value used in their last quantitative impairment
test to determine whether they are still relevant.
Understanding the assumptions that most affect the fair value of a reporting unit will enable companies to
focus their efforts on evaluating the key assumptions of the qualitative assessment so that those factors are
given more weight in the analysis. For example, drivers of fair value for a reporting unit that is valued using
the income approach may be cash flow projections, terminal growth rate or the weighted-average cost of
capital (WACC), whereas the drivers of fair value for a reporting unit that is valued using the market approach
may be applicable industry multiples such as multiples of revenue or earnings before interest, taxes,
depreciation and amortization (EBITDA). Regardless of the method used for determining and calculating fair
value for a reporting unit in the past (e.g., income approach, market approach), it is important to remember
that the determination of fair value is based on a market participant concept.
Once a company identifies the key assumptions involved, it should determine how sensitive those
assumptions are to market and industry factors that occurred during the period since the last quantitative
impairment test. The following three illustrations highlight specific procedures that a company should
consider performing depending on the most significant drivers of value that it identifies. These illustrations
are not meant to indicate that these are the only procedures to perform or factors to consider. Companies
applying the qualitative assessment also must keep in mind that other facts may still be relevant because
the key drivers affecting fair value can evolve over time.
Illustration 3-3: Drivers of value — income approach, external factors
In the prior year, Company A evaluated its consumer products reporting unit (RU 1) using the income
approach. In the current year, Company A has elected to apply the qualitative assessment to test RU 1’s
goodwill balance for impairment. As part of its qualitative assessment, Company A reviewed its prior-year
fair value calculation and determined that the fair value of RU 1 was most sensitive to changes in the WACC.
Based on these facts, Company A should focus on revisiting the assumptions made in determining the WACC in
the prior year. In doing so, Company A could update those with more current-year information (e.g., updated
market risk premium, updated beta estimate, current risk-free rate, company-specific risk premium)
and evaluate how using the newly calculated WACC would change the prior-year fair value calculation.

Illustration 3-4: Drivers of value — income approach, internal factors
Assume the same facts in Illustration 3-3, except that in reviewing the prior-year fair value calculation,
Company A determined that in addition to the external factors associated with WACC, the fair value of
RU 1 was most sensitive to changes in the expected growth rates over the forecast period, which also
affect the calculated terminal value. In that fact pattern, Company A should verify the accuracy of its
forecasts over the past few years by comparing its projections with actual results. Company A should
also evaluate the company-specific events and circumstances that have occurred since the prior year’s
calculation and consider their effect on management’s growth rate assumptions for RU 1. In addition,
since management’s growth rate assumption affects projections during both the forecast period and
the terminal period, Company A should verify that the growth rate assumptions used to calculate the
forecast period cash flows and the terminal value are internally consistent.
Illustration 3-5: Drivers of value — market approach
In the prior year, Company A evaluated its reporting unit (RU 2) using the market approach. In the
current year, Company A has elected to apply the qualitative assessment to test RU 2’s goodwill
balance for impairment. As part of its qualitative assessment, Company A reviewed its prior-year fair
value calculation and determined that the fair value of RU 2 was most sensitive to changes in the
assumed industry multiples. Based on these facts, Company A should consider obtaining market data
on recent transactions and reviewing the multiples observed to determine the direction in which those
multiples would drive RU 2’s fair value.
For additional interpretive guidance on determining fair value, refer to our FRD, Fair value measurement.
3.1.1.2.3 Identify events and circumstances
Identify Text
Determine the
starting point
fair value
After considering its starting point and identifying the key drivers of fair value for its reporting unit, a
company must identify the events and circumstances (including but not limited to those outlined in
ASC 350-20-35-3C) that may have an effect on the fair value of a reporting unit.
A company’s analysis of events and circumstances should focus on factors that have changed since the
last quantitative impairment test. Using the most recent fair value calculation as the starting point and
focusing on changes in events and circumstances will indicate how a current-period fair value calculation
may compare with the last quantitative impairment test.
In assessing which events and circumstances most affect the fair value of a reporting unit, a company
should consider how it describes its business, risk factors and accounting policies in its annual report and
other public filings as well as in any other public forums, including its company website and earnings
calls. We believe that management’s qualitative goodwill assessment should be consistent with how it
views and discusses the reporting unit. Accordingly, the assertions made by management in its qualitative
assessment should be consistent with statements made to the public regarding the future state of the
business (whether formally in its annual report or informally on an earnings call) and/or with the projected
financial information being provided to the board of directors and other stakeholders. In their analyses,
companies should also consider information that has not yet been disclosed publicly, such as pending
litigation or plans to enter new or exit existing service lines.

3.1.1.2.3.1 Cumulative analysis

The qualitative assessment must consider all events and circumstances since the most recent fair value
calculation was performed. It is important for companies to remember that this requires a cumulative
analysis of factors rather than a review of events that transpired during the current year.
Illustration 3-6: Cumulative analysis
In each of the last three years, Company A has applied the qualitative assessment for one of its
reporting units (RU 1) and concluded that a quantitative impairment test was not necessary. The
results of the most recent fair value calculation (i.e., as of four years ago) indicated that the fair value
of the reporting unit exceeded its carrying amount by 44%. Company A has considered the following in
its current-year qualitative assessment for RU 1:
• Revenue for RU 1 increased 7% over the prior year.
• Gross margin increased 3% year to date from the same period last year (mostly due to “bolt-on”
acquisitions).
• The overall S&P 500 Index is 12% lower than it was at the last measurement date, and public
entities within RU 1’s industry are down a more modest 3%.
Analysis
While the market and industry information included in Company A’s analysis provides information
since the last fair value calculation, the company-specific information focuses too narrowly on current-
year events. As time goes on, the relevance of the most recent fair value calculation diminishes. The
excess fair value that existed four years ago is no longer as precise as it was on the date of the
calculation, as various factors have occurred since then that will change both the fair value and the
carrying amount of the reporting unit. All events and circumstances that have transpired since the last
quantitative impairment test must be considered.
In addition to the factors already considered, Company A should assess how RU 1 has performed for
the cumulative three-year period leading to the current-year evaluation. Additionally, Company A
should consider that it may have more difficulty determining the likelihood of an impairment based on
qualitative factors alone since the current-year increase is driven largely by acquisitions. In addition, if
RU 1 has done a number of similar small bolt-on acquisitions over the past three years, the ratio of
excess fair value to the increased carrying amount will need to be considered. However, if RU 1
showed internal growth in revenue and gross margins in each of the three previous years, that positive
evidence, absent other negative factors, may tip the scale in favor of a conclusion that the qualitative
assessment is appropriate for assessing RU 1’s goodwill for impairment.
Companies should develop policies and controls for weighing evidence over a longer period of time, as
required by the qualitative assessment.

3.1.1.2.4 Weigh the identified factors
Identify Text
Determine the
starting point
fair value
Once a company identifies the events and circumstances that most affect the fair value of a reporting
unit, it must weigh all factors in their totality to determine whether they support a conclusion that it is
more likely than not that a reporting unit’s fair value is less than its carrying amount. Given the potential
for many events and circumstances to affect the fair value of a reporting unit, it is crucial for companies
to give more weight in their qualitative assessments to those factors that most affect fair value.
Illustration 3-7: Weighing factors
Company A is a public company with multiple reporting units operating in the media and
entertainment industry. Company A has identified the following positive and negative evidence about
the fair value of its publishing reporting unit (Pub), which sells both physical and digital books:
• Two years ago, Pub recorded a goodwill impairment charge, due in large part to the overall decline
in the economy and the valuation of the publishing industry. As the economy started to recover,
Pub’s prior-year quantitative impairment test concluded that the fair value of the reporting unit
exceeded its carrying amount by 18%.
• As the industry has rebounded from the lows of two years ago, revenue for the past two years
increased by 12% and 7%, respectively. However, increased competition in the publishing industry
resulted in declines in gross margins over the past two years of 2% and 3%, respectively.
• Four months ago, a retail bookseller that accounted for 7% of Pub’s gross margin filed for
bankruptcy protection and left the industry. However, Pub is exploiting new digital distribution
networks that it expects to account for 4% of its gross margin. Pub’s two largest remaining
physical distribution customers account for 45% of its gross margin.
• Pub’s president retired during the year and was replaced by the chief operating officer of a
smaller competitor.
• During the last year, the overall S&P 500 Index is 8% lower than it was at the last measurement
date and public entities in the publishing industry are down 12%.
• Pub’s carrying amount increased by 2%.

Analysis
Company A will have to weigh the various positive and negative events above in performing its
qualitative assessment. However, Company A can simplify its analysis by giving more weight to the
drivers of fair value that most affect the fair value of Pub.
The impairment charge that Pub recorded two years ago is not significant to the current analysis.
Given the fact that Pub’s fair value was 18% greater than its carrying amount a year ago, there was
clearly an improvement in the fair value of Pub subsequent to the impairment being recorded.
Another factor that Company A may give less weight to is the positive effects of increases in revenues.
Since gross margins are declining while revenues are growing, that revenue growth could be driven by
the overall rebound in the economy from two years ago. Although the high-percentage revenue
growth appears positive, it is not increasing at the same pace as expenses, likely resulting in declining
value overall.
Similarly, Company A may determine that the relatively quick replacement of the reporting unit’s
president with an executive of a competitor with industry experience weighs less on the fair value
calculation than other factors. However, if the president was a prominent figure in the industry and a
significant factor in the market valuation of the company and the departure was unexpected and/or
without a transition plan, this factor may have a significant effect on the fair value of the reporting unit.
The bankruptcy of the physical retailer and expansion into digital distribution representing a negative
7% and positive 4% effect on gross margin, respectively, could potentially cancel each other out and
will have less weight on the overall analysis. However, the deterioration of the physical market (which
is not fully being offset by gains in the digital market) should be evaluated to see whether this is an
ongoing trend that could indicate future projections should be updated to reflect diminishing revenues.
Lastly, the company should evaluate the contract terms and financial health (e.g., creditworthiness) of
Pub’s two largest remaining physical customers because this assessment will likely have a larger effect
on the fair value of Pub.
In addition to the weight of the factors as discussed above, Company A must consider the effect of the
overall declines in market and industry values and the change in Pub’s carrying amount in order to
make a qualitative conclusion about the fair value of Pub.
3.1.1.2.4.1 Inverse relationship to level of documentation

As discussed in section 3.1.1.2.1, the starting point for a qualitative assessment should be reviewing the
most recent fair value calculation and determining based on recent events the margin between fair value
and carrying amount. Illustration 3-8 below indicates the level of effort that will be required to perform
the qualitative assessment depending on the amount of margin that existed in the last quantitative
impairment test.

Illustration 3-8: Relationship between excess fair value over carrying amount in most recent
calculation and level of current-year documentation
As the graphic above indicates, the smaller the margin, the stronger the supporting evidence and the
more robust the documentation likely would need to be to qualitatively conclude that it is more likely
than not that a reporting unit’s fair value is less than its carrying amount. Conversely, the larger the
margin, the easier it may be to come to a conclusion about the fair value of a reporting unit using the
qualitative assessment.
When the margin is small, companies might also consider performing corroborative procedures, such as
comparing assumptions used in the current-year qualitative assessment with actual results in the market
and industry in which the reporting unit operates (e.g., analyst reports, recent public transactions).
Similarly, companies should remember that as time passes from the date of the most recent fair value
calculation, the less relevant that fair value calculation becomes.
3.1.1.2.4.2 Sensitivity analyses

Since the concept of fair value is inherently quantitative (i.e., its end result is a value), in certain cases,
making a qualitative assertion about the fair value of a reporting unit may require supporting or
corroborating quantitative analysis. While determining the effect of an individual event or circumstance
may be straightforward, weighing various factors against each other will require additional judgment.
Due to the complexities of fair value calculations (under any method), weighing the factors that could
affect fair value may prove challenging without some sort of sensitivity analysis to help quantify which
factors most affect fair value.

Illustration 3-9: Sensitivity analysis — market approach
Company A is a public oil and gas company with multiple reporting units based on geography. Assume
the following with respect to the US reporting unit (RU) of Company A:
• In the prior year’s quantitative impairment test, the fair value of RU exceeded its carrying amount
by 19%. Company A used the market approach to determine RU’s fair value.
• Overall equity markets are down 14% in the current year, and recent transactions in the oil and
gas industry indicate multiples have decreased 11% from the assumptions used in the prior year.
• Company A has not yet reviewed its company-specific factors from the prior year, and is
considering whether the declines in the oil and gas industry and overall market, absent offsetting
positive evidence, would have such a negative effect on the fair value of RU that Company A would
not be able to make a qualitative assertion that it is not more likely than not that the fair value of
RU is less than its carrying amount.
Analysis
In this fact pattern, because of the negative indicators, Company A could consider performing some sort
of sensitivity analysis on the fair value of RU before determining whether to proceed with the qualitative
assessment. By updating the assumptions used in the prior year’s fair value calculation to reflect the
declines in oil and gas multiples, Company A can quickly evaluate how sensitive its most recent fair value
is to the industry-wide declines in value. In doing this sensitivity comparison, Company A should also
update its carrying amount to reflect current-year information, which will provide a better indication of
whether Company A would pass the Step 1 test if all other factors remained the same.
If updating the assumptions to reflect current industry multiples causes the Step 1 test from the prior
year to fail and there are no other significant offsetting positive factors, Company A likely would
conclude that it should perform the annual two-step impairment test in the current year. Alternatively,
if after reflecting the declines in multiples and changes in carrying amounts the sensitivity analysis
indicates that there is still excess fair value, Company A may likely conclude that it will continue with
the qualitative assessment and identify and evaluate the other events and circumstances affecting fair
value to complete its analysis.
Company A may also consider performing a breakeven sensitivity analysis to determine how low the
relevant market multiple would have to fall before it triggered impairment in the prior-year fair value
calculation. Company A could then evaluate the probability that RU would be subject to a market
multiple consistent with the implied breakeven market multiple. For example, if the market multiple
needed to decline by 5x for the fair value of RU to be less than its carrying amount, Company A may
conclude that the likelihood of potential impairment would be low and conclude that performing the
qualitative assessment would be sufficient. In contrast, if the market multiple needed to decline by
only 1x before triggering a potential impairment, the company may conclude that performing a full
Step 1 analysis would be necessary.

Illustration 3-10: Sensitivity analysis — income approach
Assume the same facts as in Illustration 3-9, except that Company A used the income approach
(i.e., discounted cash flow method) to determine RU’s fair value. Additionally, the market capitalizations
of public US companies in the oil and gas industry also have declined on average 11% from the time of
the prior-year fair value calculation.
Analysis
In this fact pattern, Company A might consider performing a sensitivity analysis using the information
in the most recent fair value calculation. By updating the WACC used in the prior-year calculation to
better reflect the additional perceived risk related to companies operating in the oil and gas industry
and to capture any incremental risk specific to the RU and its projections, Company A could determine
the significance of the decline in equity values of its industry on its fair value calculation. If performing
this sort of sensitivity analysis causes the entity to fail the Step 1 test from the prior year and there
are no other significant offsetting positive factors, Company A likely would conclude that it should
perform the annual two-step impairment test in the current year.
Company A also may consider performing a breakeven sensitivity analysis to determine how high the
WACC would have to rise before it triggered impairment in the prior-year fair value calculation.
Company A could then evaluate the probability that RU would be subject to a WACC rate consistent
with the implied breakeven WACC. For example, if the WACC needed to rise by 10% for the fair value
of RU to be less than its carrying amount, Company A may conclude that the likelihood of potential
impairment would be low and conclude that performing the qualitative assessment would be sufficient.
In contrast, if the WACC needed to rise by only 1% before triggering a potential impairment, the
company may conclude that performing a full Step 1 analysis would be necessary.
The illustrations above show how certain quantitative calculations may help support specific qualitative
assertions. However, it is important to remember that sensitivity analyses such as these should not be
performed without consideration of all facts and circumstances. The qualitative assessment requires an
evaluation of facts and circumstances in their totality to determine whether it is more likely than not that
the fair value of a reporting unit is less than its carrying amount.
Depending on the facts and circumstances for a particular reporting unit, a company might consider involving
external valuation specialists to help determine ranges for key assumptions to be used in the sensitivity analysis.
For additional guidance on determining fair value, refer to our FRD, Fair value measurement.
3.1.1.2.5 Conclude
Identify Text
Determine the
starting point
fair value
The final step in performing the qualitative assessment is to conclude. As a reminder, if a company
concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying
amount, it must perform the annual two-step test. If it concludes otherwise, it has completed its goodwill
impairment assessment and can skip the annual two-step test.

Concluding that a reporting unit has passed the qualitative assessment (i.e., that it is not more likely than
not that the fair value is less than the carrying amount) will require companies to apply significant
judgment. Clear documentation of the factors considered, including any necessary supporting evidence
or quantitative calculations, will be essential. Depending on the complexity of the reporting unit being
evaluated, it may also be necessary to obtain input from valuation specialists.
A lack of a thorough analysis of the effects of all significant events and circumstances on the fair value or
carrying amount of a reporting unit could lead to an incorrect conclusion. Developing clear, contemporaneous
documentation also will help a company support its conclusions if regulators raise questions.
3.1.2 Reporting units with zero or negative carrying amounts

Step 1
350-20-35-8A
If the carrying amount of a reporting unit is zero or negative, the second step of the impairment test
shall be performed to measure the amount of impairment loss, if any, when it is more likely than not
(that is, a likelihood of more than 50 percent) that a goodwill impairment exists. In considering
whether it is more likely than not that a goodwill impairment exists, an entity shall evaluate, using the
process described in paragraphs 350-20-35-3F through 35-3G, whether there are adverse qualitative
factors, including the examples of events and circumstances provided in paragraph 350-20-35-3C(a)
through (g). In evaluating whether it is more likely than not that the goodwill of a reporting unit with a
zero or negative carrying amount is impaired, an entity also should take into consideration whether
there are significant differences between the carrying amount and the estimated fair value of its
assets and liabilities, and the existence of significant unrecognized intangible assets.
A company is required to perform Step 2 of the goodwill impairment test when the carrying amount of a
reporting unit is zero or negative and there are qualitative factors such as those in ASC 350-20-35-3C that
indicate it is more likely than not that goodwill is impaired. ASC 350 does not prescribe how a reporting
unit’s carrying amount should be determined. See section 3.9.1 for further discussion.
3.1.3 Consideration of deferred income taxes in determining the carrying amount of

a reporting unit
350-20-35-7
In determining the carrying amount of a reporting unit, deferred income taxes shall be included in the
carrying amount of the reporting unit, regardless of whether the fair value of the reporting unit will be
determined assuming it would be bought or sold in a taxable or nontaxable transaction.
350-20-35-20
For purposes of determining the implied fair value of goodwill, an entity shall use the income tax bases
of a reporting unit's assets and liabilities implicit in the tax structure assumed in its estimation of fair
value of the reporting unit in Step 1. That is, an entity shall use its existing income tax bases if the
assumed structure used to estimate the fair value of the reporting unit was a nontaxable transaction,
and it shall use new income tax bases if the assumed structure was a taxable transaction.

350-20-35-21
Paragraph 805-740-25-6 indicates that a deferred tax liability or asset shall be recognized for differences
between the assigned values and the income tax bases of the recognized assets acquired and liabilities
assumed in a business combination in accordance with paragraph 805-740-25-3. To the extent present,
tax attributes that will be transferred in the assumed tax structure, such as operating loss or tax credit
carry forwards, shall be valued consistent with the guidance contained in paragraph 805-740-30-3.
ASC 350-20-35-7 addresses certain issues related to consideration of deferred taxes when performing
the goodwill impairment tests. Deferred tax assets and liabilities that arise from differences between the
book and tax bases of assets and liabilities assigned to a reporting unit should be included in the carrying
amount of the reporting unit, regardless of whether the fair value of the reporting unit will be determined
assuming it would be bought or sold in a taxable or non-taxable transaction. We also believe that the
effect of any valuation allowances on deferred tax assets should be included in the carrying amount of
the reporting unit.
See section 3.10 for further discussion on assigning assets or liabilities used in multiple reporting units
and section 3.3.2 for further discussion of the consideration of deferred taxes in the determination of the
fair value of a reporting unit.
3.2 Goodwill impairment test is incomplete

Determining the Implied Fair Value of Goodwill
350-20-35-18
If the second step of the goodwill impairment test is not complete before the financial statements are
issued or are available to be issued (as discussed in Section 855-10-25) and a goodwill impairment loss
is probable and can be reasonably estimated, the best estimate of that loss shall be recognized in
those financial statements (see Subtopic 450-10).
350-20-35-19
Paragraph 350-20-50-2(c) requires disclosure of the fact that the measurement of the impairment
loss is an estimate. Any adjustment to that estimated loss based on the completion of the
measurement of the impairment loss shall be recognized in the subsequent reporting period.
It is possible that a company will have to issue financial statements before completing Step 2 of the
impairment test and measuring any impairment loss. In this case, if the loss is probable and can be
reasonably estimated, the best estimate of the loss should be recognized in the financial statements
(using the guidance in ASC 450). Companies should disclose the fact that the measurement of the
impairment loss is an estimate. Any adjustment to that estimated loss resulting from the completion of
the measurement should be recognized in the subsequent period.
If the second step of the goodwill impairment test is not complete before the financial statements are
issued and a goodwill impairment loss is probable, we believe it will be infrequent that a company would
be unable to reasonably estimate the amount of the impairment loss prior to the issuance of its financial
statements. See section 3.5 for additional information on the timing of the goodwill impairment test.

3.3 Fair value measurements of a reporting unit (updated July 2021)

Determining the Fair Value of a Reporting Unit
350-20-35-22
The fair value of a reporting unit refers to the price that would be received to sell the unit as a whole in
an orderly transaction between market participants at the measurement date. Quoted market prices in
active markets are the best evidence of fair value and shall be used as the basis for the measurement,
if available. However, the market price of an individual equity security (and thus the market
capitalization of a reporting unit with publicly traded equity securities) may not be representative of
the fair value of the reporting unit as a whole.
350-20-35-23
Substantial value may arise from the ability to take advantage of synergies and other benefits that
flow from control over another entity. Consequently, measuring the fair value of a collection of assets
and liabilities that operate together in a controlled entity is different from measuring the fair value of
that entity’s individual equity securities. An acquiring entity often is willing to pay more for equity
securities that give it a controlling interest than an investor would pay for a number of equity
securities representing less than a controlling interest. That control premium may cause the fair value
of a reporting unit to exceed its market capitalization. The quoted market price of an individual equity
security, therefore, need not be the sole measurement basis of the fair value of a reporting unit.
350-20-35-24
In estimating the fair value of a reporting unit, a valuation technique based on multiples of earnings or
revenue or a similar performance measure may be used if that technique is consistent with the
objective of measuring fair value. Use of multiples of earnings or revenue in determining the fair value
of a reporting unit may be appropriate, for example, when the fair value of an entity that has
comparable operations and economic characteristics is observable and the relevant multiples of the
comparable entity are known. Conversely, use of multiples would not be appropriate in situations in
which the operations or activities of an entity for which the multiples are known are not of a
comparable nature, scope, or size as the reporting unit for which fair value is being estimated.
The fair value of a reporting unit is the amount at which the unit as a whole could be sold in a current
transaction between willing parties (i.e., other than in a forced or liquidation sale). If a public company
has only one reporting unit (or has a publicly traded subsidiary that represents a reporting unit), the
market capitalization of the public company (or its public subsidiary) provides significant evidence about
the fair value of that reporting unit.
When the estimated fair value of a company is greater than its market capitalization, this generally implies
that a control premium14 (which may also be described more broadly as an acquisition premium15) has
been considered in determining the fair value of the company’s reporting unit(s). A control premium may
be included if management believes that substantial value may arise from a market participant’s ability to
take advantage of synergies and other benefits (e.g., enhanced cash flows, reduced risk) that result from
obtaining control over a company (or reporting unit).
14
A control premium is typically defined as the “amount or percentage by which the pro rata value of a controlling interest exceeds
the pro rata value of a noncontrolling interest in a business enterprise to reflect the value of control.”
15
An acquisition premium is the amount or percentage by which the pro rata value of a controlling interest under an acquirer
(i.e., new controlling shareholder(s)) exceeds its value when measured with respect to the current stewardship of the enterprise.

ASC 350 acknowledges that an acquirer often is willing to pay a premium over the quoted market price for
equity securities that give it a controlling interest. Quoted market prices generally represent the price of
stock for a noncontrolling interest in the company under the stewardship of existing management. Therefore,
the quoted market price of individual securities need not be the sole measurement basis of the fair value of
a reporting unit.
ASC 820 provides the framework for measuring fair value. See our FRD, Fair value measurement, for
further guidance.
3.3.1 Market capitalization as a corroboration of fair value (updated July 2021)

While this is not required under US GAAP, a publicly traded company should reconcile the fair value of its
reporting unit(s) to its stock price and market capitalization to corroborate its fair value estimates used in
both interim and annual impairment testing. The SEC staff, in fact, has requested that registrants provide
evidence of this analysis to justify an implied control premium.
The SEC staff has said that a registrant is not expected to calculate its market capitalization using a point-
in-time market price as of the date of its goodwill impairment assessment.16 Instead, the registrant may
consider recent trends in its stock price over a reasonable period leading up to the impairment testing date.
Historically, a “reasonable period” has been interpreted to mean a relatively short period, the length of
which might vary depending on the company’s facts and circumstances. However, the SEC staff also has
said that registrants should not ignore a recent decline in market capitalization. Companies should be
prepared to support any range of dates they use to determine their market capitalization, based on
company-specific factors, including volatility in the company’s stock price.
While many public companies have multiple reporting units and may not use their market value to
determine the fair value of their reporting units, we would expect companies to document and explain, in
sufficient detail, the reasons for any significant difference between the sum of the fair values of their
individual reporting units and the company’s total market capitalization (i.e., implied control premium).
The extent of documentation and analysis will vary based on the facts and circumstances. Broad
generalizations, including assertions that the current market is not reflective of underlying values or the
use of a “rule of thumb,” to explain differences between the fair value of a reporting unit(s) and market
capitalization would not be appropriate.
The SEC staff17 has said that it does not apply a bright-line test when evaluating control premiums and
that the application of judgment can result in a range of reasonably possible control premiums.
Regardless of whether the analysis is quantitative, qualitative or some combination of those approaches,
the SEC staff has said it would expect a company to have objective evidence to support the
reasonableness of its implied control premium. The SEC staff also expects the amount of documentation
supporting the implied control premium to increase as the control premium increases.
More analyses and documentation on the following topics may be required to support the market
capitalization reconciliation, based on current market conditions:
• Synergies — the price that would be paid to obtain specific synergies that would enhance an
enterprise’s cash flow as a result of obtaining control
• Reduction in required rate of return — the increase in value from reducing the required rate of return
through the market participant acquirer’s ability to optimize the capital structure
16
Remarks by Robert G. Fox III, Professional Accounting Fellow at the SEC, at the 2008 AICPA National Conference on Current SEC
and PCAOB Developments, 8 December 2008.
17

• Information transparency — the difference between the information a market participant acquirer of
the business as a whole would have access to and an individual who buys shares in the public market
would have access to
Determining a reasonable implied control premium is often challenging. The Appraisal Foundation’s
Valuations in Financial Reporting Valuation Advisory 3: The Measurement and Application of Market
Participant Acquisition Premiums (Valuation Advisory) that was issued in September 2017 provides best
practices on the appropriate methodologies to use. Although the Valuation Advisory is not authoritative
guidance, we understand that the valuation techniques described in the Valuation Advisory are generally
recognized by the valuation community as acceptable methods for determining a control premium.
3.3.1.1 Effect of qualitative assessment on performing a market capitalization reconciliation

(updated July 2021)
When a company reconciles the fair values of its reporting units to its overall market capitalization, the
company’s ability to support an implied control premium will become more complicated if it uses the
qualitative assessment to test the goodwill of one or more of its reporting units for impairment. The Board
acknowledged in paragraph BC34 of ASU 2011-08 that the use of the qualitative assessment will result
in companies applying judgment about when and how to perform the market capitalization reconciliation.
While companies that elect to apply the qualitative assessment to one or more reporting units would not
have current indicators of fair value to reconcile to market capitalization, the Board concluded that a
company’s inability to perform this reconciliation should not be determinative with respect to its decision
on whether to apply the qualitative assessment. Instead, in certain situations it may be appropriate for a
company to perform a limited evaluation of the reasonableness of the implied premium based on other
sources of information available to the company about the fair value of its reporting units for which a
qualitative assessment was performed. For example, a company may compare its market capitalization
to the sum of the fair values of the reporting units for which a quantitative test is performed in the current
year, plus fair value information from a prior quantitative test that has been adjusted for changes in market
conditions that have affected the underlying cash flows since the last quantitative test was performed for
others (i.e., reporting units that are qualitatively assessed in the current year). While this evaluation is
not as precise as a market capitalization reconciliation in which all reporting units have current fair value
calculations, it may provide information about the reasonableness of the implied premium for the
consolidated company. If, based on this limited analysis, the results of the market capitalization and
related premium do not reconcile, companies should consider performing additional analyses.
If a company records an impairment charge for one or more reporting units as a result of performing the
quantitative impairment test, it may wish to consider whether performing a full market capitalization
reconciliation would provide further evidence with respect to its overall conclusions about fair value and
the related goodwill impairment charge. Depending on the facts and circumstances, a company may
conclude that performing a full market capitalization reconciliation (including calculating the fair value of
reporting units for which it had previously only assessed qualitatively) could be useful to verify that the
impairment charge recorded was accurate. There is inherent risk in calculating a goodwill impairment
using Step 2 of the goodwill impairment test because doing so involves using a range of estimates to
allocate fair value to the net assets of the reporting unit. Accordingly, performing a full market
capitalization reconciliation of the fair value of all reporting units can help companies verify that the
value assigned to the impaired reporting unit is appropriate.
Similarly, companies that experience a sustained decrease in share price (either in absolute terms or
relative to peers) may want to consider performing an overall market capitalization reconciliation to verify
the reasonableness of their assertions of the fair value of each of their reporting units. Depending on the
facts and circumstances, such a decrease could be identified as a significant driver of fair value that could
result in a company concluding that a quantitative market capitalization reconciliation is necessary.

3.3.2 Effect of deferred taxes on fair value assumptions

Deferred Income Tax Considerations
350-20-35-25
Before estimating the fair value of a reporting unit, an entity shall determine whether that estimation
should be based on an assumption that the reporting unit could be bought or sold in a nontaxable
transaction or a taxable transaction. Making that determination is a matter of judgment that depends
on the relevant facts and circumstances and must be evaluated carefully on a case-by-case basis (see
Examples 1 through 2 [paragraphs 350-20-55-10 through 55-23]).
350-20-35-26
In making that determination, an entity shall consider all of the following:
a. Whether the assumption is consistent with those that marketplace participants would incorporate
into their estimates of fair value
b. The feasibility of the assumed structure
c. Whether the assumed structure results in the highest and best use and would provide maximum
value to the seller for the reporting unit, including consideration of related tax implications.
350-20-35-27
In determining the feasibility of a nontaxable transaction, an entity shall consider, among other
factors, both of the following:
a. Whether the reporting unit could be sold in a nontaxable transaction
b. Whether there are any income tax laws and regulations or other corporate governance requirements
that could limit an entity's ability to treat a sale of the unit as a nontaxable transaction.
ASC 350-20-35-7 addresses certain issues related to consideration of deferred taxes when performing the
goodwill impairment tests. In determining the fair value of a reporting unit, the following must be considered:
• The determination of whether to estimate the fair value of a reporting unit by assuming that the unit
could be bought or sold in a non-taxable transaction versus a taxable transaction in performing Step 1
of the goodwill impairment test is a matter of judgment that depends on the relevant facts and
circumstances and must be evaluated on a case-by-case basis. In making that determination, an
entity should consider, among other things, (1) whether the assumption is consistent with those that
marketplace participants would incorporate into their estimates of fair value, (2) the feasibility of the
assumed structure and (3) whether the assumed structure results in the reporting unit’s highest
economic value to the seller.
• An entity should use the income tax bases of a reporting unit’s assets and liabilities implicit in the tax
structure assumed in its estimation of fair value of the reporting unit in Step 1. That is, an entity
should use its existing income tax bases (and recalculate deferred tax balances for any difference
between those income tax bases and the fair values of the assets and liabilities determined in Step 2)
when a non-taxable transaction is assumed in Step 1 of the goodwill impairment test and assume
new income tax bases (and new deferred tax balances) when a taxable transaction is assumed in Step 1
of the goodwill impairment test.

Two examples are codified in ASC 350-20-55-10 through 55-23 (before the adoption of ASU 2017-04)
to illustrate how an entity evaluates whether a market participant would sell a reporting unit in a
nontaxable or taxable transaction, and how that evaluation affects the determination of fair value of a
reporting unit when performing the quantitative impairment test.
3.3.3 Level of future funding for pension plans considerations

When testing a reporting unit’s goodwill for impairment, companies may need to request their future
funding requirements information early to incorporate it into valuations. At the 2008 AICPA National
Conference on SEC and PCAOB Developments, the SEC staff confirmed its view that the inclusion of
updated pension information in a company’s Step 2 test is appropriate even though the annual pension
measurement date is required to be the end of the company’s fiscal year per ASC 715.
3.3.4 Other impairment considerations

Performing the goodwill impairment test may result in certain complications that must be considered
early in the process. For one, obtaining fair value information for all assets and liabilities of a reporting
unit can be a significant undertaking that may be very time consuming. In some cases, the fair value of
long-lived assets, loans, or other assets may be lower than their book values, which may lead to a greater
value of implied goodwill. This may make sense if the underlying business is doing well but the assets held
have declined in value. In addition, see section 3.7 for discussion about the order of impairment testing.
3.4 Goodwill impairment test of a reporting unit that includes all or part of a foreign
entity
Foreign Currency Matters — Translation of Financial Statements
Other Presentation Matters
Translation After a Business Combination
830-30-45-11
After a business combination, the amount assigned at the acquisition date to the assets acquired and
the liabilities assumed (including goodwill or the gain recognized for a bargain purchase in accordance
with Subtopic 805-30) shall be translated in conformity with the requirements of this Subtopic.
Consideration of Cumulative Translation Adjustment in Impairment Tests

830-30-45-13
An entity that has committed to a plan that will cause the cumulative translation adjustment for an
equity method investment or a consolidated investment in a foreign entity to be reclassified to
earnings shall include the cumulative translation adjustment as part of the carrying amount of the
investment when evaluating that investment for impairment. The scope of this guidance includes an
investment in a foreign entity that is either consolidated by the reporting entity or accounted for by
the reporting entity using the equity method. This guidance does not address either of the following:
a. Whether the cumulative translation adjustment shall be included in the carrying amount of the
investment when assessing impairment for an investment in a foreign entity when the reporting
entity does not plan to dispose of the investment (that is, the investment or related consolidated
assets are held for use)
b. Planned transactions involving foreign investments that, when consummated, will not cause a
reclassification of some amount of the cumulative translation adjustment.

830-30-45-14
In both cases, paragraph 830-30-40-1 is clear that no basis exists to include the cumulative translation
adjustment in an impairment assessment if that assessment does not contemplate a planned sale or
liquidation that will cause reclassification of some amount of the cumulative translation adjustment.
(If the reclassification will be a partial amount of the cumulative translation adjustment, this guidance
contemplates only the cumulative translation adjustment amount subject to reclassification pursuant
to paragraphs 830-30-40-2 through 40-4.)
830-30-45-15
An entity shall include the portion of the cumulative translation adjustment that represents a gain or
loss from an effective hedge of the net investment in a foreign operation as part of the carrying
amount of the investment when evaluating that investment for impairment.
When a reporting unit contains one or more foreign entities or is a foreign entity (as defined by ASC 830),
entities will need to carefully consider whether a portion of goodwill resulting from an acquired business
should be attributed to a foreign entity. A foreign entity may include a subsidiary, division, branch or joint
venture that constitutes a reporting unit by itself or that is contained in a broader reporting unit. That is,
a foreign entity as defined by ASC 830 may differ from a legal entity. See section 1.2.2 of our FRD,
Foreign currency matters, for additional discussion on the definition of a foreign entity under ASC 830.
Goodwill attributed to a foreign entity (along with assets acquired and liabilities assumed) should be
initially measured in the functional currency of the foreign entity and subsequently translated to the
reporting currency of the parent (if the functional currency of the foreign entity is different from the
reporting currency) at the current exchange rate. Any resulting translation adjustments would be
included as a cumulative translation adjustment (CTA). Changes in the goodwill balance caused by
foreign currency translation should be reflected in the reporting units where goodwill is assigned.
This initial and subsequent measurement would apply regardless of whether goodwill and related
acquisition method adjustments were pushed down to the books and records of the foreign entity.
As discussed in section 3.1, goodwill is tested for impairment at the reporting unit level. To test goodwill
for impairment at the reporting unit, goodwill (along with assets acquired and liabilities assumed) in
connection with a business combination is assigned to a reporting unit as of the date of acquisition.
See sections 3.9 through 3.11 for general guidance related to the assignment of assets acquired and
liabilities assumed and goodwill to reporting units. See section 4.2.1 of our FRD, Foreign currency
matters, for additional discussion on the translation of amounts of assets acquired and liabilities
assumed and goodwill assigned to reporting units after a business combination under ASC 830.
Question 3.2 Should goodwill related to a multi-currency reporting unit be tested for impairment at a level lower
than the reporting unit?
No. ASC 350-20-35-1 requires entities to test goodwill for impairment at the reporting unit level. Therefore,
goodwill cannot be tested for impairment at any level within the entity other than the reporting unit level.

3.4.1 Consideration of CTA amounts in the carrying amount of a reporting unit

If a reporting unit contains one or more foreign entities or is a foreign entity (as defined by ASC 830), additional
considerations apply for the related CTA amount(s). If an entity has committed to a plan that will cause the CTA
for a consolidated investment in a foreign entity to be reclassified into earnings, ASC 830-30-45-13
requires the entity to include that CTA amount in the carrying amount of the investment when evaluating
that investment for impairment. Accordingly, if a reporting unit contains a foreign entity or is a foreign
entity that’s being sold or liquidated, we believe it would be appropriate to also include the CTA amount in
the carrying amount of the reporting unit for purposes of performing Step 1 of the goodwill impairment
test. Otherwise, the carrying amount of the reporting unit should exclude the effect of the CTA amount
(i.e., the balance of the net assets, excluding the CTA amounts recorded as other comprehensive income).
In connection with the issuance of ASU 2017-04, the FASB indicated in paragraph BC56 that there is
diversity in practice as to whether ASC 830 requires inclusion of the CTA as part of the carrying amount
of the reporting unit that includes such investment if the criteria in ASC 830 are otherwise met. See
section 3A.4.1 for treatment of CTA post-adoption of ASU 2017-04. For additional guidance on when
CTA would be reclassified into earnings, see section 4.4.1 of our FRD, Foreign currency matters.
Illustration 3-11: Treatment of CTA in goodwill impairment test
Company A is performing Step 1 of the goodwill impairment test for a reporting unit that also is a
foreign entity that has the following balances (after currency translation):
Assets (including goodwill) $ 50

Liabilities (20)
Net assets $ 30
Paid-in-capital and retained earnings $ (35)
Cumulative translation adjustment 5
Total equity $ (30)
Company A has not committed to a plan that will cause the CTA balance to be reclassified to earnings.
Analysis
We believe, pursuant to ASC 830-30-45-13, because Company A has not committed to a plan that will
cause the CTA balance to be reclassified to earnings, the CTA balance should not be included in the
carrying amount of the reporting unit. Therefore, the carrying amount of the reporting unit’s net
assets should be based on current exchange rates, or $30. If the entity had committed to a plan that
would cause the CTA balance to be reclassified to earnings, the carrying amount of the reporting unit
for the goodwill impairment test would be $35 (add the $5 CTA debit balance to the $30 carrying
amount of the reporting unit’s net assets that are based on current exchange rates).
3.5 Frequency of goodwill impairment tests

350-20-35-28
Goodwill of a reporting unit shall be tested for impairment on an annual basis and between annual
tests in certain circumstances (see paragraph 350-20-35-30). The annual goodwill impairment test
may be performed any time during the fiscal year provided the test is performed at the same time
every year. Different reporting units may be tested for impairment at different times.

Goodwill of each reporting unit must be tested for impairment at least annually. The timing of the annual
impairment test does not have to be at the end of each fiscal year. The goodwill impairment test can be
performed at any time during the year as long as that measurement date is used consistently going
forward. A company’s decision to apply the qualitative assessment does not change the company’s
annual testing date (see section 3.1.1 for guidance on the qualitative assessment). Further, a company
can elect to assign different measurement dates to different reporting units based on factors such as the
seasonality of the business, the dates that it will be easiest to determine fair value (if necessary), and
spreading out the workload if the determinations are to be performed internally. For example, a company
can elect to consistently perform its annual impairment tests for Reporting Unit A in December,
Reporting Unit B in September and Reporting Unit C in June.
Public companies should carefully select their annual goodwill measurement dates because quarterly
reporting requirements limit the amount of time to complete the fair value determinations required. For
example, if a calendar year-end public company selects 30 September or another quarter end as its
annual measurement date and subsequently experiences goodwill impairment, there may be insufficient
time to complete all of the required valuation analysis prior to the date the third quarter Form 10-Q is
due. As discussed in section 3.2, if Step 2 cannot be completed before the financial statements for that
period are issued, an estimated impairment loss should be recognized if a goodwill impairment loss is
probable and can be reasonably estimated. We believe it will be infrequent that a company will be unable
to reasonably estimate the amount of an impairment loss prior to the issuance of its financial statements.
We observe that companies often choose the beginning of the fourth fiscal quarter as the annual
impairment test date. Following this approach, companies will have the appropriate carrying amounts
available as of the last day of the prior fiscal quarter and will have the full quarter to assess if they have a
potential impairment (qualitative assessment and/or Step 1) and complete the measurement (Step 2), if
required. For this reason, we believe it will be rare for a company that has established its annual
impairment assessment date at the beginning of a fiscal quarter to be unable to complete its assessment
and reasonably estimate an impairment loss, if any, prior to the issuance of its financial statements. If a
company identifies an impairment charge when performing its annual assessment as of the beginning of
its fiscal fourth quarter, it should consider whether the impairment is appropriately recognized in the
fourth quarter or whether it should have been recognized in an earlier interim period.
Further, this approach would alleviate concerns about whether indicators exist in later quarters of the
fiscal year, which could occur if the impairment test was performed earlier in the year (i.e., the risk that
an indicator of impairment occurred and was not detected between the completion of the annual test and
the preparation of the year-end financial statements is reduced).
3.5.1 Changing the goodwill assessment date

Some companies might elect to change the date of the annual goodwill assessment date. In those
situations, an entity should look to current SEC guidance. Section II.G.2 of the SEC staff’s Current
Accounting and Disclosure Issues in the Division of Corporation Finance18 states the following about a
registrant’s ability to change the annual assessment date:
SFAS 142 [ASC 350-20] requires that goodwill be tested, at the reporting unit level, for impairment on an
annual basis. An impairment test also could be triggered between annual tests if an event occurs or
circumstances change. A reporting unit is required to perform the annual impairment test at the same
time every year, however, nothing precludes a registrant from changing the date of the annual
impairment test. If a registrant chooses to change the date of the annual impairment test, it should
ensure that no more than 12 months elapse between the tests. The change in testing dates should not be
made with the intent of accelerating or delaying an impairment charge. The staff will likely raise concerns
if a registrant is found to have changed the date of its annual goodwill impairment test frequently.
18
Updated 30 November 2006.

Any change to the date of the annual goodwill impairment test would constitute a change in the method
of applying an accounting principle, as discussed in paragraph 4 of SFAS 154 [ASC 250-10-45-1], and
therefore would require justification of the change on the basis of preferability. The registrant is
required by Rule 10-01(b)(6) of Regulation S-X to disclose the date of and reason for the change.
When an SEC registrant makes a voluntary change in accounting principle, it generally is required to include
a preferability letter issued by its independent registered public accounting firm as Exhibit 18 to its first
periodic report filed subsequent to the accounting change. In a December 2014 speech, an SEC staff
member19 stated the following: “… the staff has observed that some registrants may view a change in
goodwill impairment testing date to not represent a material change to a method of applying an
accounting principle, even if goodwill is material to the financial statements, because the change in
impairment testing date is not viewed to have a material effect on the financial statements in light of the
registrant’s internal controls and requirements under Topic 350 to assess goodwill impairment upon
certain triggering events.” Refer to section 3 of our FRD, Accounting changes and error corrections, for
further discussion and considerations on whether a preferability letter is required for a change in goodwill
impairment testing date.
3.6 Interim impairment test

350-20-35-30
Goodwill of a reporting unit shall be tested for impairment between annual tests if an event occurs or
circumstances change that would more likely than not reduce the fair value of a reporting unit below its
carrying amount. Additionally, if the carrying amount of a reporting unit is zero or negative, goodwill of
that reporting unit shall be tested for impairment on an annual or interim basis if an event occurs or
circumstances exist that indicate that it is more likely than not that a goodwill impairment exists. Paragraph
350-20-35-3C(a) through (g) includes examples of such events and circumstances, and paragraph 350-20-
35-8A includes additional factors to consider when the carrying amount of a reporting unit is zero or
negative. Paragraphs 350-20-35-3F through 35-3G describe the process for making these evaluations.
In addition to the annual goodwill impairment test, an interim test for goodwill impairment should be
completed when an event occurs or circumstances change between annual tests that would more likely
than not reduce the fair value of the reporting unit below its carrying amount. ASC 350-20-35-3C
provides the following list of events and circumstances to consider in determining whether an interim
goodwill impairment test is necessary:
• Macroeconomic conditions (e.g., deterioration in general economy)
• Industry and market considerations (e.g., deterioration in the environment in which the company operates)
• Cost factors (e.g., increases in raw materials, labor)
• Overall financial performance (e.g., negative or declining cash flows)
• Other relevant entity-specific events (e.g., changes in management or key personnel)
19
Remarks by Carlton E. Tartar, Associate Chief Accountant at the SEC, at the 2014 AICPA National Conference on Current SEC

• Events affecting a reporting unit (e.g., change in composition of net assets, expectation of disposing
all or a portion of the reporting unit)
• A sustained decrease in share price (in either absolute terms or relative to peers), if applicable
These events and circumstances are examples, not an all-inclusive list of goodwill impairment indicators.
Other events and changes in circumstances may also require goodwill to be tested for impairment
between annual measurement dates. Companies must test goodwill of a reporting unit for impairment
after a portion of goodwill has been assigned to a business that is disposed of. If an acquisition generated
synergistic goodwill that was assigned to a reporting unit that was not assigned other acquired assets, we
believe that the subsequent disposal of that acquired business may be an impairment indicator of the
goodwill at the reporting unit to which the synergistic goodwill was assigned.
Certain market conditions may lead to a conclusion that one or more of those events have occurred. The
SEC staff20 said it will consider the following indicators when performing reviews:
• Recent operating losses at the reporting unit level
• Downward revisions to forecasts
• A decline in enterprise market capitalization below book value
• Restructuring actions or plans
• Industry trends
3.6.1 Market capitalization as an impairment indicator

A company’s market capitalization is considered in two ways under ASC 350-20. The first is as an indicator of
possible impairment that would require an interim assessment of goodwill for impairment. The second, as
discussed in section 3.3.1, is as a corroborative source of market information that is utilized to verify that the
values used in Step 1 and Step 2 of the goodwill impairment analysis are reasonable. The general principle
used in determining whether an interim impairment test for goodwill is required is whether it is more likely
than not that the fair value of a reporting unit is less than its carrying amount. Accordingly, a decline in a
company’s stock price (both in absolute terms and relative to peers) and market capitalization should be
considered in determining whether it is more likely than not that the fair value of a reporting unit is less than
its carrying amount. Situations may arise where companies may need to consider performing an interim
goodwill impairment test even though they may have recently performed their annual assessment.
A significant decline in a company’s stock price may suggest that the fair value of one or more reporting
units has fallen below their carrying amounts, indicating that an interim goodwill impairment test is
required. Similarly, declines in the stock prices of other companies in a reporting unit’s industry may
suggest that an interim test for goodwill impairment is required. To assess whether the decline in market
capitalization is an indicator requiring an interim goodwill impairment test, companies should consider
the underlying reasons for the decline in the value of the securities (for example, adverse change in the
business climate, an adverse action taken by a regulator), as well as the significance of the decline and
the length of time the securities have been trading at a depressed value. It should not be assumed that a
decline in the market price is temporary and that the stock price will recover.
20
Remarks by Steven C. Jacobs, Associate Chief Accountant at the SEC, at the 2008 AICPA National Conference on Current SEC

3.7 Goodwill impairment test in conjunction with another asset (or asset group)
350-20-35-31
If goodwill and another asset (or asset group) of a reporting unit are tested for impairment at the same time,
the other asset (or asset group) shall be tested for impairment before goodwill. For example, if a significant
asset group is to be tested for impairment under the Impairment or Disposal of Long-Lived Assets
Subsections of Subtopic 360-10 (thus potentially requiring a goodwill impairment test), the impairment test
for the significant asset group would be performed before the goodwill impairment test. If the asset group
was impaired, the impairment loss would be recognized prior to goodwill being tested for impairment.
350-20-35-32
This requirement applies to all assets that are tested for impairment, not just those included in the
scope of the Impairment or Disposal of Long-Lived Assets Subsections of Subtopic 360-10.
Because the impairment model uses the comparison of the fair value and the carrying amount of the
reporting unit as the measure of potential impairment, ASC 350-20 requires that if an impairment test of
goodwill and any other asset that is held for use is required at the same time, impairment tests of all
other assets (e.g., inventory, long-lived assets) should be completed and reflected in the carrying amount
of the reporting unit prior to the completion of the goodwill impairment test. For example, if an
impairment test under ASC 360-10 is being completed for a significant group of assets of a reporting
unit that also requires a goodwill impairment test, the impairment test for the significant asset group
should be completed pursuant to ASC 360-10 and the carrying amount of the asset group adjusted
before completing the goodwill impairment test. The following example highlights the order of
impairment testing when other assets are tested in conjunction with goodwill.
Illustration 3-12: Order of impairment testing
Assume that ABC Inc. has a reporting unit that includes the following:
Receivables Inventory
Goodwill Property, plant and equipment
Indefinite-lived intangibles Finite-lived intangibles
ABC has determined that the property, plant and equipment and finite-lived intangibles constitute an
asset group. ABC also has determined that an interim impairment test is warranted for all assets of the
reporting unit, including its goodwill, its asset group and the other individual assets of the reporting unit.
Analysis
ASC 350-20 and ASC 360-10 require the asset group and goodwill to be tested for impairment (after
adjustments are made to other assets and liabilities in the group according to other applicable US
GAAP) in the following order:
First Second Last
Receivables Property, plant and equipment Goodwill
Inventory

3.7.1 Acquired entity represents only a part of the reporting unit

When an acquired entity represents only part of the reporting unit (as is typically the case), the implied
fair value of goodwill could include the appreciation of earlier acquisitions, unrecognized goodwill from
prior pooling-of-interests and internally generated goodwill. In these circumstances, unrealized losses on
acquisition goodwill are offset against unrecognized goodwill within the reporting unit.
For example, a very successful acquisition made years ago that has appreciated would offset impairment
of goodwill from a recent acquisition in the same reporting unit that has performed very poorly. The FASB
acknowledges the existence of this “cushion” that is built into the impairment model. However, the FASB
concluded that keeping track of acquisition-specific goodwill for impairment testing purposes would be
almost impossible once an acquired company has been integrated into the acquiring company. The FASB
also acknowledges that acquired goodwill may be offset or replaced by unrecorded internally generated
goodwill and concluded that this was appropriate provided that the company is able to maintain the
overall value of goodwill (e.g., by expending resources on advertising and customer service). However,
offsetting such amounts between reporting units is not permitted.
3.8 Identification of reporting units

350-20-35-33
The provisions of Topic 280 shall be used to determine the reporting units of an entity.
350-20-35-34
A component of an operating segment is a reporting unit if the component constitutes a business or a
nonprofit activity for which discrete financial information is available and segment management, as
that term is defined in paragraph 280-10-50-7, regularly reviews the operating results of that
component. Subtopic 805-10 includes guidance on determining whether an asset group constitutes a
business. Throughout the remainder of this Section, the term business also includes a nonprofit activity.
350-20-35-35
However, two or more components of an operating segment shall be aggregated and deemed a single
reporting unit if the components have similar economic characteristics. Paragraph 280-10-50-11 shall be
considered in determining if the components of an operating segment have similar economic characteristics.
350-20-35-36
An operating segment shall be deemed to be a reporting unit if all of its components are similar, if
none of its components is a reporting unit, or if it comprises only a single component.
350-20-35-37
Reporting units will vary depending on the level at which performance of the segment is reviewed, how
many businesses the operating segment includes, and the similarity of those businesses. In other
words, a reporting unit could be the same as an operating segment, which could be the same as a
reportable segment, which could be the same as the entity as a whole (entity level).
350-20-35-38
An entity that is not required to report segment information in accordance with Topic 280 is
nonetheless required to test goodwill for impairment at the reporting unit level. That entity shall use
the guidance in paragraphs 280-10-50-1 through 50-9 to determine its operating segments for
purposes of determining its reporting units.

A reporting unit is an operating segment, as that term is used in ASC 280, or one level below the
operating segment (referred to as a component), depending on whether certain criteria are met. These
criteria are discussed in detail below. An operating segment is the highest level within the company that
can be a reporting unit (i.e., the operating segment level is the ceiling), and the component level is the
lowest level within the company that can be a reporting unit (i.e., the component level is the floor). In
addition, there may be limited cases in which a company has only one operating segment that would be
its sole reporting unit. In these cases, goodwill will be tested for impairment at the entity level.
The guidance in ASC 280 states that an operating segment is not necessarily the same as a reportable
segment (for which companies must disclose certain information in the segment footnote) because
ASC 280 permits companies to aggregate operating segments into reportable segments if certain
conditions are met. ASC 280 allows for the aggregation of multiple operating segments into a single
reportable segment if either: (1) the operating segments have similar economic and other
characteristics, as defined in ASC 280-10-50-11 or (2) the operating segments do not meet the
quantitative thresholds to be reported separately but are economically similar and similar in a majority of
the other characteristics, as described in ASC 280-10-50-13.
For example, just because a company reports segment information on four reportable segments in the
notes to its financial statements does not necessarily mean that the company has four operating
segments; the company may have properly aggregated two or more operating segments into a single
reportable segment. Therefore, to identify their reporting units for purposes of goodwill impairment
testing, companies must first identify their operating segments pursuant to ASC 280.
Under the goodwill amortization accounting alternative (as discussed in section 1.1.2), a private
company or an NFP may elect to test goodwill for impairment at either the entity or reporting unit level
(refer to Appendix A for further guidance on the goodwill amortization accounting alternative). If a
private company or an NFP does not elect to apply the goodwill amortization accounting alternative, it is
required to assign and then to test goodwill for impairment at the reporting unit level even if the private
company or NFP does not report segment information under ASC 280. Our FRD, Segment reporting,
provides additional guidance on identifying operating segments.
The following guidance is applied to determine whether the reporting unit should be identified at the
operating segment or the component level:
• A component of an operating segment is a reporting unit if the component constitutes a business (as
described in our FRD, Business combinations, and discussed further below) for which discrete
financial information is available and segment management regularly reviews the operating results of
that component. Segment management consists of one or more segment managers.21
• Two or more components within the same operating segment should be aggregated and deemed a
single reporting unit if the components have similar economic characteristics.22 However,
components of different operating segments may not be aggregated into a single reporting unit,
even if they have similar economic characteristics.
21
For purposes of ASC 350, the term “segment manager” has the same meaning as in ASC 280. Generally, an operating segment has a
segment manager who is directly accountable to and maintains regular contact with the chief operating decision maker (CODM) to
discuss operating activities, financial results, forecasts, or plans for the segment. The term segment manager identifies a function,
not necessarily a manager with a specific title. The CODM may also be the segment manager for certain operating segments. A single
manager may be segment manager for more than one operating segment. If the characteristics in ASC 280-10-50-1 and 50-3 apply
to more than one set of components of an organization but there is only one set for which segment managers are held responsible,
that set of components constitutes the operating segments (ASC 280-10-50-7 and 50-8).
22
ASC 350-20 states that ASC 280-10-50-11 should be considered in determining if the components of an operating segment have
similar economic characteristics. Refer to section 3.8.4 for further discussion of similar economic characteristics.

• An operating segment should be deemed to be a reporting unit if all of its components have similar
economic characteristics, if none of its components is a reporting unit or if it is comprised of only a
single component. When an operating segment is a reporting unit, an entity may not aggregate the
operating segment/reporting unit with any other reporting units (regardless of whether the other
reporting units are operating segments or components of operating segments) for purposes of
testing goodwill for impairment.
Companies should consider the implementation guidance discussed in ASC 350-20-55-1 through 55-9
when making this determination. See section 3.8.4 for further discussion.
3.8.1 The component constitutes a business or a nonprofit activity

350-20-55-3
The determination of whether a component constitutes a business or a nonprofit activity requires
judgment based on specific facts and circumstances. The guidance in Section 805-10-55 should be
considered in determining whether a group of assets constitutes a business or a nonprofit activity.
The fact that operating information (revenues and expenses) exists for a component of an operating
segment does not necessarily mean that the component constitutes a business or a nonprofit activity.
For example, a component for which operating information is prepared might be a product line or a brand
that is part of a business or a nonprofit activity rather than a business or a nonprofit activity in and of
itself.
Section 2.1.3 of our FRD, Business combinations, provides guidance on the definition of what constitutes a
business under ASC 805.
3.8.2 Discrete financial information

350-20-55-4
The term discrete financial information should be applied in the same manner that it is applied in
determining operating segments in accordance with paragraph 280-10-50-1. That guidance indicates
that it is not necessary that assets be allocated for a component to be considered an operating
segment (that is, no balance sheet is required). Thus, discrete financial information can constitute as
little as operating information. Therefore, in order to test goodwill for impairment in accordance with
this Subtopic, an entity may be required to assign assets and liabilities to reporting units (consistent
with the guidance in paragraphs 350-20-35-39 through 35-40).
In applying the guidance in ASC 350-20-55-4, a company that produces only income statement data for
a component may be required to assign assets and liabilities to that component if that component meets
all of the other criteria of a reporting unit. However, it is not intended that a company assign assets and
liabilities resulting in a complete US GAAP balance sheet. Rather, the assigned assets and liabilities
should be limited to those that are used in or relate to the operations of the component and that would
be considered in determining the fair value of the reporting unit. If the assignment of assets and liabilities

to the component requires an excessive amount of arbitrary allocations, this might indicate that the
component is either not a business as defined by ASC 805 or it may be economically similar to another
component and should be aggregated with that other component. See section 2.1.3 in our FRD, Segment
reporting, for further discussion on discrete financial information.
3.8.3 Reviewed by segment management

350-20-55-5
Segment management, as defined in paragraphs 280-10-50-7 through 50-8, is either a level below or
the same level as the chief operating decision maker. According to Topic 280, a segment manager is
directly accountable to and maintains regular contact with the chief operating decision maker to discuss
operating activities, financial results, forecasts, or plans for the segment. The approach used in this
Subtopic to determine reporting units is similar to the one used to determine operating segments;
however, this Subtopic focuses on how operating segments are managed rather than how the entity as
a whole is managed; that is, reporting units should reflect the way an entity manages its operations.
3.8.4 Similar economic characteristics

350-20-55-6
Evaluating whether two components have similar economic characteristics is a matter of judgment that
depends on specific facts and circumstances. That assessment should be more qualitative than quantitative.
350-20-55-7
In determining whether the components of an operating segment have similar economic
characteristics, all of the factors in paragraph 280-10-50-11 should be considered. However, every
factor need not be met in order for two components to be considered economically similar. In addition,
the determination of whether two components are economically similar need not be limited to
consideration of the factors described in that paragraph. In determining whether components should
be combined into one reporting unit based on their economic similarities, factors that should be
considered in addition to those in that paragraph include but are not limited to, the following:
a. The manner in which an entity operates its business or nonprofit activity and the nature of those
operations
b. Whether goodwill is recoverable from the separate operations of each component business (or
nonprofit activity) or from two or more component businesses (or nonprofit activities) working in
concert (which might be the case if the components are economically interdependent)
c. The extent to which the component businesses (or nonprofit activities) share assets and other
resources, as might be evidenced by extensive transfer pricing mechanisms
d. Whether the components support and benefit from common research and development projects.
The fact that a component extensively shares assets and other resources with other components of
the operating segment may be an indication that the component either is not a business or nonprofit
activity or it may be economically similar to those other components.

350-20-55-8
Components that share similar economic characteristics but relate to different operating segments
may not be combined into a single reporting unit. For example, an entity might have organized its
operating segments on a geographic basis. If its three operating segments (Americas, Europe, and
Asia) each have two components (A and B) that are dissimilar to each other but similar to the
corresponding components in the other operating segments, the entity would not be permitted to
combine component A from each of the operating segments to make reporting unit A.
350-20-55-9
If two operating segments have been aggregated into a reportable segment by applying the aggregation
criteria in paragraph 280-10-50-11, it would be possible for one or more of those components to be
economically dissimilar from the other components and thus be a reporting unit for purposes of testing
goodwill for impairment. That situation might occur if an entity's operating segments are based on
geographic areas. The following points need to be considered in addressing this circumstance:
a. The determination of reporting units under this Subtopic begins with the definition of an
operating segment in paragraph 280-10-50-1 and considers disaggregating that operating
segment into economically dissimilar components for the purpose of testing goodwill for
impairment. The determination of reportable segments under Topic 280 also begins with an
operating segment, but considers whether certain economically similar operating segments
should be aggregated into a single operating segment or into a reportable segment.
b. The level at which operating performance is reviewed differs between this Subtopic and Topic 280.
It is the chief operating decision maker who reviews operating segments and the segment manager
who reviews reporting units (components of operating segments). Therefore, a component of an
operating segment would not be considered an operating segment for purposes of that Topic unless
the chief operating decision maker regularly reviews its operating performance; however, that same
component might be a reporting unit under this Subtopic if a segment manager regularly reviews its
operating performance (and if other reporting unit criteria are met).
When determining whether the components of an operating segment have similar economic characteristics,
an entity should consider all of the factors in ASC 280-10-50-11. Operating segments often exhibit
similar long-term financial performance if they have similar economic characteristics. For example,
similar long-term average gross margins for two operating segments would be expected if their economic
characteristics were similar. Two or more operating segments may be aggregated into a single operating
segment if aggregation is consistent with the objective and basic principles in ASC 280, if the segments
have similar economic characteristics and if the segments are similar in each of the following areas:
• The nature of the products and services
• The nature of the production processes
• The type or class of customer for their products and services
• The methods used to distribute their products or provide their services
• The nature of the regulatory environment, if applicable (e.g., banking, insurance, public utilities)
As discussed in EITF D-101,23 the FASB did not intend that every factor in ASC 280-10-50-11 be met in
order for two components to be considered economically similar. In addition, the Board did not intend that
the determination of whether two components are economically similar be limited to consideration of the
factors described in ASC 280-10-50-11.
23
This staff announcement summarized the FASB staff’s understanding of the Board’s intent with respect to the determination of
whether a component of an operating segment is a reporting unit. This guidance is now codified in ASC 350-20 and is discussed
in sections 3.8.1 through 3.8.5.

We believe the guidance in ASC 350-20-55-7, which clarifies that the FASB did not intend that all of the
factors in ASC 280-10-50-11 must be met in order for two components to be considered economically
similar, gives companies greater latitude in evaluating whether components should be aggregated than
one may initially perceive based solely on the reference to the guidance in ASC 280-10-50-11. For
example, the existence of a wide range of gross profit margins between components does not necessarily
mean that those components cannot be aggregated. In addition, we believe that this interpretive
guidance may give companies with vertically integrated operations within a single operating segment
greater latitude in concluding that the components may be economically similar.
This guidance underscores the fact that components of two separate operating segments may not be
aggregated into a single reporting unit. This may be troublesome for companies that report segment
information based on geographic areas.
3.8.5 Additional observations

Some constituents have noted that two operating segments may have been aggregated into a reportable
segment by applying the aggregation criteria in ASC 280-10-50-11, and have inquired about whether
one or more of the components of those operating segments can be reporting units. The FASB staff
believes it would be possible for one or more of those components to be economically dissimilar from the
other components and thus be a reporting unit for purposes of testing goodwill for impairment. In
particular, as discussed in EITF D-101, the FASB staff believes that that situation might occur when an
entity’s operating segments are based on geographic areas. The following points need to be considered
in addressing this question:
• The determination of reporting units under ASC 350-20 begins with the definition of an operating
segment in ASC 280-10-50-1 and considers disaggregating that operating segment into
economically dissimilar components for the purpose of testing goodwill for impairment. The
determination of reportable segments under ASC 280 also begins with an operating segment, but
considers whether certain economically similar operating segments should be aggregated into a
single operating segment or into a reportable segment.
• The level at which operating performance is reviewed differs between ASC 280 and ASC 350 — it is
the chief operating decision maker (CODM) who reviews operating segments and the segment manager
operating segment would not be considered an operating segment for ASC 280 purposes unless the
CODM regularly reviews its operating performance; however, that same component might be a reporting
unit under ASC 350-20 if a segment manager regularly reviews its operating performance (and if other
reporting unit criteria are met).
Implicit in the FASB’s guidance is the fact that identifying the reporting unit begins with the definition of
an operating segment. ASC 280 allows for the aggregation of two operating segments into a single
reportable segment if the aggregation criteria in ASC 280-10-50-11 are met. If a company has a reportable
segment under ASC 280 that consists of aggregated operating segments, it must first look through the
aggregated reportable segment to its operating segments to begin the assessment of its reporting units.
In summary, reporting units will vary depending on the level at which performance of the operating
segment is reviewed, how many businesses are included in the operating segment, and the economic
similarity of those businesses. The FASB believes that defining the reporting unit one level below the
operating segment level (i.e., the component level) is appropriate and aligns with how operating results are
regularly reviewed to make decisions about resource allocation and to assess segment performance.
However, the FASB also noted that even though segment management might review the operating results
of a number of business units, components with similar economic characteristics should be aggregated into
one reporting unit because the benefit of goodwill is shared by components of an operating unit that have
similar economic characteristics. Because of this sharing of benefits, allocating goodwill among those
components would be arbitrary and unnecessary for the purpose of testing goodwill for impairment.

We believe that identifying the reporting units is one of the more difficult and judgmental processes in
applying ASC 350-20. Therefore, we believe that companies should document their selection of reporting
units and the basis for that selection (and retain that documentation).
The following example illustrates how the concepts described above would be applied.
Illustration 3-13: Identification of reporting units

Background
Entity
RS1 RS2
OS1 OS2 OS3
C1 C2 C3 C4 C5 C6 C7
RS = The reportable segments included in the ASC 280 segment disclosures. This company has two reportable segments (RS1
and RS2).
OS = The operating segments under ASC 280. This company has three operating segments (OS1, OS2 and OS3). In applying ASC 280,
the company determined that OS1 and OS2 have similar economic characteristics and meet the criteria for aggregation in
ASC 280-10-50-11. Therefore, OS1 and OS2 qualified for aggregation into RS1. OS3 meets the quantitative thresholds in
ASC 280 to be reported separately and has not been aggregated with any other operating segment and is therefore the same as
reportable segment RS2.
C = The components of the company. This company has seven components (C1, C2, C3, C4, C5, C6 and C7) that are one level
below the operating segments.
Identifying the reporting units

• Determining the reporting units of the company begins at the operating segment level (OS1, OS2
and OS3). ASC 350-20 does not allow the aggregation of OS1 and OS2 as permitted under
ASC 280 for the purpose of determining the reportable segment.
• The company will apply the reporting unit criteria in ASC 350-20 to the components to determine
if the reporting unit should be identified one level below the operating segment. Each component
will be evaluated to determine if: (a) it is a business (as defined in ASC 805), (b) discrete financial
information is available and (c) the operating results are regularly reviewed by the segment
manager(s). If the components of a specific operating segment meet these criteria, they might be
deemed to be separate reporting units. However, if they have similar economic characteristics
(which is a matter of judgment based on individual facts and circumstances), these components
must be aggregated into one reporting unit.

For example, assume C5, C6 and C7 each are businesses for which discrete financial information is
available, and segment (OS3) management regularly reviews their individual operating results. If C5,
C6 and C7 all have dissimilar economic characteristics, then there would be three reporting units
within OS3 as each of the components would be a reporting unit. If C5 and C6 have similar economic
characteristics, but C7 does not have similar economic characteristics to C5 and C6, then there would
be two reporting units within OS3: (1) C5 and C6 combined, and (2) C7. If C5, C6 and C7 all have
similar economic characteristics, the reporting unit would be the operating segment (OS3).
• Components of different operating segments may not be aggregated even if they have similar
economic characteristics. As such, if C2 and C3 had similar economic characteristics, they could
not be aggregated because C2 and C3 are components of different operating segments.
Conclusions
• The company will have at least three reporting units based on the fact that three operating
segments have been identified.
• The company can have as many as seven reporting units (the number of components). The
number will depend on how many components meet the reporting unit criteria and, if so, the
number of potential components that must be aggregated based on similarity of economic
characteristics, which is based on judgment.
• The company will not have more than seven reporting units. Even if levels exist below the
components that meet the reporting unit criteria, ASC 350-20 prohibits identifying the reporting
unit more than one level below the operating segment.
In general, we do not believe that identifying multiple reporting units below the operating segment level
would otherwise call into question a company’s disclosure of reportable segments under ASC 280, provided
that the company appropriately applied the provisions of that guidance. A key distinction between an
operating segment and a component is the level of review of the operating results of each. The CODM
reviews the results of an operating segment, while a segment manager reviews the results of a component.
A segment manager is normally directly accountable to and maintains regular contact with the CODM
(ASC 280-10-50-7 and 50-8). However, the SEC staff often questions whether registrants properly identify
operating segments under ASC 280.
The SEC continues to emphasize segment disclosures and the application of ASC 280 during its review process.
The SEC staff comments generally focus on: (1) the identification of operating segments, (2) the aggregation
or combination of operating segments and (3) the effect of changes to operating segments on reporting
units and the related assessment of goodwill for impairment. In some cases, the SEC has insisted upon
restatement, indicating that segment reporting may represent an area of increased financial reporting risk.
ASC 350-20 does not require a company to disclose the identity or number of its reporting units. However,
if the SEC staff reviews a company’s segment reporting, management should be prepared to justify the
reporting units identified.
3.9 Assigning assets acquired and liabilities assumed to reporting units

350-20-35-39
For the purpose of testing goodwill for impairment, acquired assets and assumed liabilities shall be
assigned to a reporting unit as of the acquisition date if both of the following criteria are met:
a. The asset will be employed in or the liability relates to the operations of a reporting unit.

b. The asset or liability will be considered in determining the fair value of the reporting unit.
Assets or liabilities that an entity considers part of its corporate assets or liabilities shall also be
assigned to a reporting unit if both of the preceding criteria are met. Examples of corporate items that
may meet those criteria and therefore would be assigned to a reporting unit are environmental
liabilities that relate to an existing operating facility of the reporting unit and a pension obligation that
would be included in the determination of the fair value of the reporting unit. This provision applies to
assets acquired and liabilities assumed in a business combination and to those acquired or assumed
individually or with a group of other assets.
To test goodwill for impairment at the reporting unit level, assets acquired and liabilities assumed should
be assigned to a reporting unit as of the date of acquisition. The purpose of this assignment process is to
establish the “carrying amount” of the reporting units so that Step 1 of the goodwill impairment test
(i.e., the comparison of the carrying amount of a reporting unit to its fair value) can be performed.
Both of the following criteria should be met for an acquired asset or assumed liability to be assigned to a
reporting unit:
• The asset will be employed in or the liability relates to the operations of a reporting unit
• The asset or liability will be considered in determining the fair value of the reporting unit
ASC 350-20 does not require the assignment of all assets acquired and liabilities assumed to a reporting
unit; only those meeting the above criteria should be assigned. Further, the Board noted that another
objective of the process is to assign to a reporting unit all of the assets and liabilities that would be
necessary for the reporting unit to operate as a business. For example, acquired cash or marketable
securities that are unrelated to any reporting unit and its working capital requirements, but are general
corporate assets of the acquired company, need not be assigned to a reporting unit. In addition, an
entity’s debt may be at the corporate level and/or reside at a subsidiary.
An entity’s estimate of a reporting unit’s fair value should include assigned debt if both of the following apply:
• The debt relates to the operations of the reporting unit.
• The debt is likely to be transferred in the event the reporting unit is sold.
As a result, absent the situations noted above, we believe that in applying the provisions in
ASC 350-20-35-39, an entity would not typically assign general corporate debt to its reporting units.
Also, the assets and liabilities assigned need not constitute a complete US GAAP balance sheet. Further,
while ASC 350-20 refers to acquired assets and assumed liabilities, assets and liabilities that are generated
or originated by a company should also be assigned to reporting units based on the criteria above.
3.9.1 Determining the manner in which the carrying amount of a reporting unit is
derived (equity versus enterprise)
Some constituents have questioned the manner in which a reporting unit’s carrying amount should be
determined (i.e., under an “equity” premise or an “enterprise” premise). ASU 2010-28 (codified in
ASC 350-20) addressed the issue of when to perform Step 2 of the goodwill impairment test for reporting
units with zero or negative carrying amounts (see section 3.1.2 for further information). In paragraph BC4
of ASU 2010-28, the FASB noted that the EITF evaluated different approaches for calculating the carrying
amount of reporting units. Eventually, the EITF decided not to prescribe how a reporting unit’s carrying
amount should be determined. However, the EITF observed that the manner in which the fair value and
carrying amount of the reporting unit are determined should be consistent.

When a reporting unit’s carrying amount is based on an equity premise, all liabilities (including debt) are
available for assignment to the reporting unit. Conversely, when a reporting unit’s carrying amount is
based on the enterprise premise, debt is excluded from the liabilities assigned to the reporting unit. When
the carrying amount of debt approximates its fair value, using either premise would not have an effect on
Step 1 of the goodwill impairment test. In addition, when no debt has been assigned to the reporting unit,
the carrying amount of the reporting unit will be the same under either premise.
Furthermore, in circumstances where the carrying amount of an asset or liability equals its fair value, its
assignment to a reporting unit will have an equal effect on both the carrying amount and the fair value of
the reporting unit. However, the carrying amount of an asset or liability will often differ from its fair value.
As a result, the selection of either the equity or enterprise premise or the decision to assign certain
assets and liabilities to a reporting unit may affect the outcome of Step 1 of the goodwill impairment test.
3.9.2 Assignment of a contingent consideration asset or liability

Often the consideration transferred in a business combination may include a contingent consideration
arrangement. ASC 805 states that an acquirer should recognize the acquisition-date fair value of
contingent consideration as part of the consideration transferred in exchange for the acquiree. That
arrangement may represent an asset or liability.
When determining whether to assign a contingent consideration asset or liability to a reporting unit, the
criteria in ASC 350-20-35-39 should be considered. If the reporting unit is obligated to pay or has the
right to receive the contingent consideration, we believe the contingent consideration asset or liability
generally would be assigned to that reporting unit. In addition, it may be appropriate to assign a
contingent consideration arrangement to a reporting unit even if the reporting unit is not the legal
counterparty to the arrangement. This may arise if the reporting unit includes the business acquired and
a market participant would assume that obligation or right if the reporting unit was sold in a transaction.
3.10 Assets or liabilities used in multiple reporting units

350-20-35-40
Some assets or liabilities may be employed in or relate to the operations of multiple reporting units.
The methodology used to determine the amount of those assets or liabilities to assign to a reporting
unit shall be reasonable and supportable and shall be applied in a consistent manner. For example,
assets and liabilities not directly related to a specific reporting unit, but from which the reporting unit
benefits, could be assigned according to the benefit received by the different reporting units (or based
on the relative fair values of the different reporting units). In the case of pension items, for example, a
pro rata assignment based on payroll expense might be used. A reasonable allocation method may be
very general. For use in making those assignments, the basis for and method of determining the fair
value of the acquiree and other related factors (such as the underlying reasons for the acquisition and
management's expectations related to dilution, synergies, and other financial measurements) shall be
documented at the acquisition date.
Some assets or liabilities may be employed in or related to the operations of multiple reporting units. The
methodology used to determine the amounts to assign to each reporting unit in these cases should be
reasonable, supportable and applied in a consistent manner. For example, assets and liabilities that are not
directly related to a specific reporting unit, but provide benefits to the reporting unit, could be assigned
according to the benefit received by the different reporting units or based on the relative fair values of the
reporting units. One example of basing the assignment on the benefits received would be assigning pension

obligations in proportion to the payroll expense of the reporting units. The assignment method used for
particular assets and liabilities should be applied consistently. The basis for and method of determining the
fair value of the acquiree and other related factors (such as the underlying reasons for the acquisition and
management’s expectations related to dilution, synergies and other financial measurements) in assigning
assets and liabilities to multiple reporting units should be documented at the acquisition date.
3.10.1 Assets or liabilities accounted for at the corporate level

ASC 350-20 also requires the assignment of all applicable assets and liabilities that may be accounted
for at the corporate level, including environmental liabilities using the criteria noted in section 3.10.
Additionally, when assets or liabilities do not meet the criteria in section 3.10 and are not included in the
carrying amount of the reporting unit, they should be treated consistently in determining the fair value of
the reporting unit (Step 1) and (if necessary) in determining the implied fair value of the reporting unit’s
goodwill (Step 2). See section 3.1 for discussion of the goodwill impairment test.
For example, if the fair value of the reporting unit is determined based on discounted future cash flows of
the reporting unit on an unleveraged (or debt-free) basis (a common enterprise valuation methodology),
the debt associated with the reporting unit should be treated consistently (i.e., excluded) in determining the
carrying amount of the reporting unit so that the comparison of those values is meaningful. On the other
hand, if the debt relates to the operations of the reporting unit and would be considered in determining its
fair value (e.g., if a property assigned to the reporting unit secures a mortgage), the company should
include the debt in both the determination of the fair value and the carrying amount of the reporting unit.
See previous discussion at section 3.9.1.
The goal of such assignment is to confirm that comparisons of the fair value to the carrying amount of
reporting units are on an “apples-to-apples” basis. Therefore, this assignment requires the company to
understand how items such as debt, accounts receivable, accounts payable, inventories, accrued
liabilities and other working capital items are treated in the valuation of the reporting unit so that those
items are treated consistently in assigning assets and liabilities to reporting units. Another objective of
this exercise is to assign to the reporting units all of the assets and liabilities that would be necessary for
that reporting unit to operate as a business. Therefore, to the extent that corporate items are reflected
in the fair value of a reporting unit, they should be assigned to the reporting unit. For example, pension
liabilities related to active employees would normally be assumed when acquiring a business. Therefore,
that type of liability should generally be included in determining the fair value of the reporting unit.
The FASB acknowledges that the requirement to assign corporate level assets and liabilities could be
considered inconsistent with ASC 280, which requires that the reported segment include only those
assets that are included in the measure of the segment’s assets that is used by the CODM. Therefore,
goodwill and other assets may not be included in reported segment assets. ASC 350-20 does not literally
require that goodwill and all other related assets and liabilities assigned to reporting units for the purpose
of testing goodwill for impairment be included in a company’s reported segment assets. Rather, the
assignment process is simply a method of identifying the reporting unit to which assets and liabilities
relate and determining the consolidated company’s carrying amount of reporting units. However, even
though an asset may not be included in reported segment assets, the asset or liability should be assigned
to the reporting unit for the purpose of the goodwill impairment test in accordance with the guidance
discussed above.
This assignment process does not affect a parent company’s cost basis in its subsidiaries, nor does it
require the subsidiary to change its basis in any assets or liabilities used for external reporting purposes
(i.e., the guidance does not require “pushdown” accounting in the separate financial statements of
subsidiaries). However, the bases of the reporting unit’s assets and liabilities used for goodwill
impairment tests should reflect the parent’s bases.

The following example illustrates the evaluation of the two criteria for assigning assets and liabilities to a
reporting unit for an entity with multiple reporting units when an asset is shared by the reporting units.
Illustration 3-14: Allocation of a brand intangible maintained at the corporate level to reporting
units
Parent, a PBE, acquired Company A in a business combination on 1 July 20X4. As of the acquisition
date, Parent determined that Company A’s operations would be split between Parent’s two existing
reporting units, RU 1 and RU 2. However, Company A’s brand name (established in conjunction with the
acquisition by Parent) is maintained at the corporate level but benefits both RU 1 and RU 2. That is, both
RU 1 and RU 2 utilize the brand name to support their revenues without a charge from Parent. Parent
determines that the brand name would be considered in determining the fair value of both reporting
units. Parent performs its annual goodwill impairment assessment as of 1 October 20X4. Assume that as
of 1 October 20X4, the fair values of RU 1 and RU 2 are $15 million and $5 million, respectively, and the
carrying amount of the brand name is $4 million. EBITDA for the three months ended 30 September
20X4 was $4 million and $1 million for RU 1 and RU 2, respectively.
Analysis
We believe that there are various approaches by which Parent could assign the brand name to RU 1
and RU 2 that could be acceptable depending on the facts and circumstances. Approach 1 typically
would be appropriate when it is likely that the reporting units sharing the brand name would be sold
without ownership of the brand name. Approach 2 typically would be appropriate when one reporting
unit is the predominant user of the brand name. Approaches 3 and 4 could be appropriate when both
reporting units benefit equally from the brand name.
Approach 1 — Assign based on an assumed rental of the brand name by each reporting unit
Under this approach, Parent is considered the owner of the brand name and it is assumed that each
reporting unit “rents” the brand name from Parent. Accordingly, the carrying amount of the brand
name would not be assigned to either RU 1 or RU 2. Rather, the determination of the fair value of both
reporting units would include an assumption relating to the cost of renting the brand name. For
example, if Parent uses a discounted cash flow method to determine the fair value of its reporting
units, Parent would include a cash outflow based on a market royalty rate relating to the rental of the
brand name by each reporting unit.
When applying a market royalty rate for the use of a brand name, Parent should consider whether the
costs related to supporting the brand name (for example, advertising and marketing) are included at
the reporting unit level or at the corporate level (that is, outside of the reporting unit). Because the
reporting units are assumed to rent the brand name rather than own it, typically the reporting units
would not be responsible for the costs related to supporting the brand name. Therefore, those costs
would not be included at the reporting unit level. If those costs were included at the reporting unit level,
this fact would need to be considered when selecting the royalty rate so as to avoid double counting.
Approach 2 — Assign based on an assumed ownership of the brand name by one reporting unit and
rental of the brand name by the other reporting unit
Under this approach, Parent would assume that one of its reporting units (for this example, assume RU 1)
owns the brand name and that RU 2 is “renting” the brand name from RU 1. Accordingly, RU 1 would
be assigned the full carrying amount of the brand name. Assuming Parent uses a discounted cash flow
method to measure the fair value of its reporting units, Parent would include in its determination of the
fair value of RU 1 a cash inflow based on a market royalty rate related to the rental of the brand name.
Parent would then include in its determination of the fair value of RU 2 a cash outflow based on a market
royalty rate related to the rental of the brand name (similar to the exercise described in Approach 1).

Under this approach, the costs related to supporting the brand name would be assigned to the
reporting unit assumed to own the brand name (in this case RU 1); no such costs would be allocated to
the reporting unit assumed to rent the brand name (in this case RU 2).
Approach 3 — Assign based on benefits received
Under this approach, assume that Parent determines that reporting unit EBITDA is an appropriate
measure of the benefits received by each reporting unit. This approach would result in assigning the
carrying amount of the brand name of $4 million to RU 1 ($3.2 million1) and to RU 2 ($0.8 million2).
If a discounted cash flow method were used to measure the fair value of the reporting unit, there
would be no cash outflow related to the use of the brand name because it would be assumed to be
owned by each reporting unit. Also, the costs related to supporting the brand name would need to be
considered and, in this situation, would be allocated between RU 1 and RU 2 because both reporting
units benefit from the use of the brand name.
Approach 4 — Assign based on relative fair values of the reporting units
This approach would result in assigning the carrying amount of the brand name based on the relative
fair values of the reporting units. As a result, $3 million3 would be assigned to RU 1 and $1 million4
would be assigned to RU 2. Similar to Approach 3, if a discounted cash flow method were used to
measure the fair value of the reporting unit, there would be no cash outflow related to the use of the
brand name because it would be assumed to be owned by each reporting unit. Also, the costs related
to supporting the brand name would need to be considered and, in this situation, would be allocated
between RU 1 and RU 2 because both reporting units benefit from the use of the brand name.
We believe that this approach would be appropriate only when the reporting units benefit from the
brand name in direct proportion to their fair values.
__________________________
1
Amount assigned to RU 1 was calculated as 80% (RU 1 EBITDA of $4 million divided by total EBITDA of $5 million) multiplied
by the $4 million carrying amount of the brand name.
2
3
Amount assigned to RU 1 was calculated as 75% (RU 1 fair value of $15 million divided by total fair value of $20 million)
multiplied by the $4 million carrying amount of the brand name.
4
3.11 Assigning goodwill to reporting units

350-20-35-41
For the purpose of testing goodwill for impairment, all goodwill acquired in a business combination
shall be assigned to one or more reporting units as of the acquisition date. Goodwill shall be assigned
to reporting units of the acquiring entity that are expected to benefit from the synergies of the
combination even though other assets or liabilities of the acquired entity may not be assigned to that
reporting unit. The total amount of acquired goodwill may be divided among a number of reporting
units. The methodology used to determine the amount of goodwill to assign to a reporting unit shall be
reasonable and supportable and shall be applied in a consistent manner. In addition, that methodology
shall be consistent with the objectives of the process of assigning goodwill to reporting units described
in paragraphs 350-20-35-42 through 43.

350-20-35-42
In concept, the amount of goodwill assigned to a reporting unit would be determined in a manner
similar to how the amount of goodwill recognized in a business combination is determined. That is:
a. An entity would determine the fair value of the acquired business (or portion thereof) to be included
in a reporting unit — the fair value of the individual assets acquired and liabilities assumed that are
assigned to the reporting unit. Subtopic 805-20 provides guidance on assigning the fair value of the
acquiree to the assets acquired and liabilities assumed in a business combination.
b. Any excess of the fair value of the acquired business (or portion thereof) over the fair value of the
individual assets acquired and liabilities assumed that are assigned to the reporting unit is the
amount of goodwill assigned to that reporting unit.
350-20-35-43
If goodwill is to be assigned to a reporting unit that has not been assigned any of the assets acquired
or liabilities assumed in that acquisition, the amount of goodwill to be assigned to that unit might be
determined by applying a with-and-without computation. That is, the difference between the fair value
of that reporting unit before the acquisition and its fair value after the acquisition represents the
amount of goodwill to be assigned to that reporting unit.
350-20-35-44
This Subtopic does not require that goodwill and all other related assets and liabilities assigned to
reporting units for purposes of testing goodwill for impairment be reflected in the entity’s reported
segments. However, even though an asset may not be included in reported segment assets, the asset
(or liability) shall be allocated to a reporting unit for purposes of testing for impairment if it meets the
criteria in paragraph 350-20-35-39.
Testing goodwill for impairment at the reporting unit level requires that all goodwill be assigned to one or
more reporting units as of the date of acquisition. All goodwill must be assigned to a reporting unit,
regardless of its source. For example, even goodwill that arises from applying pushdown accounting
pursuant to ASC 805 and fresh-start accounting pursuant to ASC 852 must be assigned to a reporting unit.
If goodwill from an acquisition is to be assigned to more than one reporting unit, ASC 350-20 requires
the methodology used be reasonable, supportable and applied in a consistent manner. Goodwill is
assigned to the reporting units that are expected to benefit from the synergies of the combination even
though other assets or liabilities of the acquired company may not be assigned to those reporting units. If
some portion of goodwill is deemed to relate to the entity as a whole, that portion of goodwill should be
assigned to all of the reporting units of the entity in a reasonable and supportable manner.
In addition to a methodology that is reasonable and supportable, the methodology used should be
consistent with the objectives of ASC 350-20-35-42 when goodwill is assigned to more than one
reporting unit at the acquisition date.
We believe that if all of the assets and liabilities of an acquired business are assigned to a specific reporting
unit, then the goodwill associated with that acquisition should also be assigned to that reporting unit, unless
it is clear that some other reporting unit is expected to benefit from the acquisition. If a reporting unit is
expected to benefit from the acquisition even though it was assigned no assets or liabilities of the acquired
company, then the “with-and-without” method is the best assignment method. This approach requires
determining the fair value of the reporting unit(s) that benefit from the acquisition. In many circumstances,
the acquirer’s calculation of the consideration transferred may include assumptions about synergistic
benefits that the acquiring company expects; in that case, the amount of goodwill to assign to the reporting
units benefited may be derived from the calculation of consideration transferred. Other reasonable and

supportable methods (other than the with-and-without method) may be appropriate, depending on the facts
and circumstances. However, the assignment method chosen should not result in an immediate impairment
of the acquired goodwill.
Depending on the facts and circumstances, we believe that the with-and-without method could be used to
assign goodwill to a reporting unit that has assets and/or liabilities assigned to it. That might be the case
when the with-and-without method would provide a more reasonable and supportable assignment of goodwill
based on how a company’s reporting units are expected to benefit from the synergies of the acquisition.
The following example illustrates the assignment of goodwill to more than one reporting unit using both the
direct and with-and-without methods.
Illustration 3-15: Goodwill assigned to more than one reporting unit
Assume that Company A completes the acquisition of Company B for consideration transferred of $50
million. The fair value of the net working capital acquired is $8 million, the fair value of the acquired
identifiable tangible and intangible assets is $27 million and goodwill is $15 million. The acquisition is
to be integrated into two of Company A’s reporting units. There is no synergistic goodwill attributable
to other reporting units.
(in millions) Acquired net assets to be assigned to:

RU 1 RU 2 Total
Fair value of:
Net working capital $ 5 $ 3 $ 8
Tangible and intangible net assets 15 12 27
Net assets to be assigned $ 20 $ 15 $ 35
Analysis — direct method:
Using the direct method, Company A assigns goodwill to the reporting units based on the difference
between the fair value of the net assets and the fair value of the acquired business (or portion thereof)
to be assigned to the reporting units.
RU 1 RU 2 Total
Fair value of acquired business (or portion thereof)* $ 33 $ 17 $ 50
Fair value of net assets to be assigned (from above) (20) (15) (35)
Goodwill assigned to reporting units $ 13 $ 2 $ 15
Analysis — “with-and-without” method:
Using the with-and-without method, Company A assigns goodwill to the reporting units based on the
difference between the fair value of the net assets to be assigned and the fair value of the acquired
business (or portion thereof). However, the fair value of the acquired business (or portion thereof) is
determined using a with-and-without method.
RU 1 RU 2 Total
Fair value of reporting unit after acquisition $ 95 $ 80 $ 175

Fair value of reporting unit prior to acquisition (62) (63) (125)
Fair value of acquired business or asset group* 33 17 50
* In this example, the sum of the fair values of the acquired businesses or asset groups equals the purchase price. In other
circumstances, this may not be the case due to synergies and other characteristics related to the relationship between the
businesses. In those cases, a reasonable and supportable method (e.g., a pro rata allocation) should be used to assign any
excess goodwill remaining after this allocation process.

3.11.1 Entity-level goodwill

In certain circumstances, goodwill recognized relates to the company as a whole instead of particular
reporting units. For example, goodwill that arises when a company applies pushdown accounting or
excess reorganization value recognized pursuant to ASC 852 often relates to the company as a whole.
In those circumstances, the net assets would have been adjusted to their fair values, and an assignment
method might be based on the relative excess of fair value of the reporting units over the net assets of
the reporting units. An assignment method based on the relative fair values of all reporting units might
be appropriate provided that it does not result in an immediate goodwill impairment charge.
3.11.2 Assignment of goodwill to reporting units for a mining entity

The EITF has considered the issue of whether an entity in the mining industry should assign goodwill to a
reporting unit that consists of an individual operating mine. Constituents raised questions because
assigning goodwill to an operating mine results in a day-two impairment of any assigned goodwill due to
the fact that the fair value of the reporting unit consists primarily of mineral deposits, which is a
depleting asset. The EITF reached a consensus that goodwill should be assigned to a reporting unit that
includes an operating mine. The EITF acknowledged that the assignment of goodwill to an individual
operating mine likely will result in an eventual goodwill impairment due to the depleting nature of the
primary asset of the reporting unit and could result in a day-two goodwill impairment. However, the EITF
agreed that the guidance in ASC 350 was clear — goodwill should be assigned to reporting units and an
individual operating mine may constitute a reporting unit. As a result, the EITF agreed to discontinue
discussion of this Issue and removed it from its agenda.
3.11.3 Delay in assignment of goodwill

As noted above, goodwill is assigned, as of the acquisition date, to one or more reporting units that are
expected to benefit from the synergies of the business combination. In certain situations, a company may
be unable to determine the fair values to be assigned to all of the acquired identifiable assets and assumed
liabilities for some time after the business combination and may utilize all or a substantial portion of the
measurement period allowed by ASC 805 to finalize the initial accounting for the business combination.
See section 7.3 in our FRD, Business combinations, for more information on the measurement period.
If the fair value of the identifiable assets acquired and liabilities assumed are determined only provisionally
at the end of the current reporting period, ASC 350-20-50-1 recognizes that an entity may not have
completed the assignment of goodwill to the reporting units. However, prior to finalization of the accounting
for a business combination, an entity might be able to provisionally assign some or all of the goodwill.
Neither the guidance in ASC 350 nor the Basis for Conclusions of Statement 142 addressed the
assignment of provisional goodwill. However, we believe that the assignment of goodwill should not be
delayed because the accounting for the business combination is incomplete. Because ASC 350 has
specific disclosure requirements and ASC 280 requires companies that report segment information to
provide information about goodwill in total and for each reportable segment, we believe that provisionally
determined goodwill should be assigned at the end of a reporting period. Once the accounting for the
business combination is finalized, the provisional amounts assigned should be reassessed and adjustments
to the goodwill that was provisionally assigned should be made as necessary.

In addition, there is required disclosure of situations where a portion of goodwill has not yet been assigned
to a reporting unit as of the date of a company’s financial statements. If an acquisition closes shortly before
the company’s year-end, the company may not have sufficient time to complete its acquisition accounting
and/or assignment of goodwill to reporting units. The company should confirm that all goodwill is assigned to the
reporting units before it performs its next annual impairment test. However, if it is determined that impairment
indicators exist, we believe this goodwill must be assigned to a reporting unit and tested for impairment.
3.11.4 Impairment testing of recently acquired goodwill

There is no requirement to test goodwill for impairment on the date of acquisition. In addition, paragraph
B382 of Statement 141(R) states that:
“The Boards acknowledged that overpayments are possible and, in concept, an overpayment should
lead to the acquirer’s recognition of an expense (or loss) in the period of the acquisition. However,
the Boards believe that in practice any overpayment is unlikely to be detectable or known at the
acquisition date. That is, the Boards are not aware of instances in which a buyer knowingly overpays
or is compelled to overpay a seller to acquire a business. Even if an acquirer thinks it might have
overpaid in some sense, the amount of overpayment would be difficult, if not impossible, to quantify.
Thus, the Boards concluded that in practice it is not possible to identify and reliably measure an
overpayment at the acquisition date. Accounting for overpayments is best addressed through
subsequent impairment testing when evidence of a potential overpayment first arises.”
We believe that this suggests that an entity should test the acquired goodwill (whether provisionally
determined or final) for impairment if impairment indicators exist. In addition, if the goodwill assessment
date follows shortly after an acquisition, a goodwill impairment test should be performed irrespective of
the status of the accounting for the business combination.
3.11.4.1 Impairment testing in a subsequent period

If the completion of the accounting for a business combination and the final assignment of goodwill to the
reporting units occur in a period subsequent to the acquisition and the amount of goodwill recognized
provisionally is different from the final amount, an issue arises if an impairment test was performed on
the provisionally recognized goodwill in the previous period. The issue is whether the previous impairment
assessment should be updated. Neither ASC 805 nor ASC 350 addresses whether a company performs
the impairment test prospectively or whether it retrospectively performs the impairment test at the
previous assessment date (date the provisionally determined goodwill was tested). We believe that if an
entity tested provisional goodwill for impairment, that impairment test should be retrospectively updated
to account for the change in the goodwill balance resulting from a qualifying measurement-period
adjustment as described in ASC 805. Qualifying measurement-period adjustments relate to facts and
circumstances that existed as of the acquisition date and any resulting change to the goodwill balance
reflects what the goodwill balance would have been as of the acquisition date. Therefore, any impairment
test performed in the provisional period should be updated to include the revised goodwill balance
because that revised balance may result in a different impairment charge than what was originally
determined. See section 7.3.3 in our FRD, Business combinations, for more information on qualifying
measurement-period adjustments.

Illustration 3-16: Impairment test of provisional goodwill during the measurement period
Consider the following facts:
• Company A acquired Company B on 1 August 20X0
• Company A included Company B in RU 1, one of its 3 existing reporting units
• Prior to the acquisition of Company B, RU 1 had existing goodwill of $8 million
• Company A’s annual goodwill assessment date is 1 October 20X0
• The accounting for the business combination was incomplete as of 1 October 20X0
• Preliminary goodwill recognized in the acquisition of Company B is $10 million, all of which was
assigned to RU 1 (resulting in a total of $18 million of goodwill assigned to RU 1)
• From the date of acquisition through 1 October 20X0, the market value of RU 1 declined
The assessment of goodwill for impairment as of 1 October 20X0 resulted in Company A recognizing a
goodwill impairment charge of $6 million for RU 1 leaving a goodwill balance of $12 million. On 1
February 20X1, Company A recognized a qualifying measurement-period adjustment that increased
the goodwill from the acquisition assigned to RU 1 by $1 million.
Analysis
Because Company A recognized a qualifying measurement-period adjustment that affects the
measurement of goodwill as of the acquisition date, and tested provisional goodwill for impairment
during the measurement period, it should update the goodwill impairment test performed as of 1
October 20X0 to reflect the increase in goodwill.
Assume the implied fair value of goodwill determined in the impairment test was not affected by the
measurement period adjustment. As a result, the impairment charge is $7 million for RU 1 (the
original $6 million impairment charge plus an additional $1 million resulting from the provisional
adjustment that increased the carrying amount of goodwill), to arrive at the same goodwill balance of
$12 million as of 1 October 20X0.
Consistent with the guidance on measurement-period adjustments, Company A would recognize the
additional $1 million impairment charge in the current period and would present or disclose the
amount of the adjustment that would have been recognized in prior periods, which in this case is the
entire additional $1 million impairment charge. Similarly, if the measurement-period adjustment had
resulted in a decrease in the goodwill balance of $1 million from the provisional amount recognized,
Company A would recognize a corresponding reduction in the impairment charge of $1 million.
3.11.5 Effect on segment disclosure

The requirement to assign all goodwill to reporting units does not mean that goodwill must be added to
the measure of reportable segment assets for purposes of reporting segment information in accordance
with ASC 280 unless the company actually assigns goodwill for internal reporting purposes. ASC 280
requires disclosure of segment assets based on information provided to the CODM in assessing performance
and allocating resources. The requirement to assign all goodwill to reporting units in accordance with
ASC 350-20 does not change the ASC 280 disclosure requirement. However, companies must disclose
the carrying amount of goodwill along with any changes in that carrying amount by reportable segment.
See section 4.2.1 further discussion.

3.12 Reorganization of a company’s reporting structure

350-20-35-45
When an entity reorganizes its reporting structure in a manner that changes the composition of one or
more of its reporting units, the guidance in paragraphs 350-20-35-39 through 35-40 shall be used to
reassign assets and liabilities to the reporting units affected. However, goodwill shall be reassigned to
the reporting units affected using a relative fair value allocation approach similar to that used when a
portion of a reporting unit is to be disposed of (see paragraphs 350-20-40-1 through 40-7).
350-20-35-46
For example, if existing reporting unit A is to be integrated with reporting units B, C, and D, goodwill in
reporting unit A would be assigned to units B, C, and D based on the relative fair values of the three
portions of reporting unit A prior to those portions being integrated with reporting units B, C, and D.
Under ASC 350-20, assets and liabilities and goodwill must be reassigned to reporting units when a company
reorganizes its reporting structure such that the composition of one or more of its reporting units is
changed. The assets (excluding goodwill) and liabilities of the affected reporting units should be reassigned
using the guidance in ASC 350-20-35-39 and 35-40. However, goodwill should be reassigned to the affected
reporting units using a relative fair value approach similar to that used when a portion of a reporting unit is
disposed of. That is, the goodwill is assigned to the businesses in the reporting units based on their relative
fair values and then follows the businesses into the new reporting unit in the reorganization.
The FASB concluded that reorganizing a reporting unit is similar to selling a business that is part of a
reporting unit, and therefore, the same methodology should be used to assign goodwill in a reorganization.
If reporting units are being divided in the reorganization, the relative fair value approach will need to be
applied. However, this model is not necessary in cases in which reporting units are being combined into a
new reporting unit. In this case, we believe that the goodwill of the existing reporting units is simply
combined in the new reporting unit.
In general, we believe that a goodwill impairment test should be performed immediately before and after
a company reorganizes its reporting structure if the reorganization would affect the composition of one
or more of its reporting units. In this circumstance, performing the impairment test immediately before
and after the reorganization would help to confirm that the reorganization is not potentially masking a
goodwill impairment charge.
Illustration 3-17: Goodwill assigned to a new reporting unit
Assume that Company A currently has three reporting units: RU 1, RU 2 and RU 3. Company A
reorganizes its reporting structure and transfers portions of RU 1, RU 2 and RU 3 into a newly formed
reporting unit, RU 4. Relevant amounts per reporting unit are as follows:
(in millions) RU 1 RU 2 RU 3 Total
Fair values $ 100 $ 40 $ 60 $ 200

Goodwill 30 10 20 60
Fair value of transferred operations 20 20 15 55
Relative fair value transferred 20% 50% 25%

Analysis:
Because goodwill is required to be assigned based on relative fair value, assignment of goodwill to RU
4 is as follows:
RU 1 RU 2 RU 3 Total
Goodwill (prior to reassignment) $ 30 $ 10 $ 20 $ 60

Goodwill assigned to RU 4 6 5 5 16
The following represents the fair values as well as the beginning and ending goodwill balances for each
reporting unit:
RU 1 RU 2 RU 3 RU 4 Total
Fair values $ 80 $ 20 $ 45 $ 55 $ 200
Goodwill (prior to reassignment) $ 30 $ 10 $ 20 $ 0 $ 60

Goodwill assigned to RU 4 (6) (5) (5) 16 0
Goodwill (after reassignment) $ 24 $ 5 $ 15 $ 16 $ 60
3.13 Goodwill impairment testing by a subsidiary for standalone reporting

350-20-35-47
Subsidiary goodwill might arise from any of the following:
a. Acquisitions that a subsidiary made prior to its being acquired by the parent
b. Acquisitions that a subsidiary made subsequent to its being acquired by the parent
c. Goodwill arising from the business combination in which a subsidiary was acquired that the parent
pushed down to the subsidiary’s financial statements.
350-20-35-48
All goodwill recognized by a public or nonpublic subsidiary (subsidiary goodwill) in its separate financial
statements that are prepared in accordance with generally accepted accounting principles (GAAP)
shall be accounted for in accordance with this Subtopic. Subsidiary goodwill shall be tested for
impairment at the subsidiary level using the subsidiary’s reporting units. If a goodwill impairment loss
is recognized at the subsidiary level, goodwill of the reporting unit or units (at the higher consolidated
level) in which the subsidiary’s reporting unit with impaired goodwill resides must be tested for
impairment if the event that gave rise to the loss at the subsidiary level would more likely than not
reduce the fair value of the reporting unit (at the higher consolidated level) below its carrying amount
(see paragraph 350-20-35-3C(f)). Only if goodwill of that higher-level reporting unit is impaired would
a goodwill impairment loss be recognized at the consolidated level.
350-20-35-49
If testing at the consolidated level leads to an impairment loss, that loss shall be recognized at that
level separately from the subsidiary’s loss.

ASC 350-20 requires that goodwill reported in separate US GAAP financial statements issued by a
subsidiary be tested for impairment by the subsidiary. That is, the subsidiary tests all goodwill on its
books as if the subsidiary was a standalone entity in accordance with the provisions of ASC 350-20.
This requirement applies to both public and non-public subsidiaries issuing separate US GAAP financial
statements. Goodwill at a subsidiary can arise from acquisitions made prior to the company becoming a
subsidiary of the parent, from applying pushdown accounting when the parent acquired the subsidiary
and from acquisitions made after the company became a subsidiary of the parent.
If the subsidiary is required to recognize a goodwill impairment in its standalone financial statements, that
impairment is not recognized in the parent company’s financial statements (i.e., the impairment is not
“pushed up” to the higher level of consolidation). However, the parent company should consider whether
a goodwill impairment loss recognized at the subsidiary level indicates that the goodwill of the reporting
unit or units in which the subsidiary resides should be tested. That is, if the impairment of goodwill at the
subsidiary level indicates that it is more likely than not that the fair value of the affected reporting unit(s)
is below their carrying amount, the goodwill in that reporting unit(s) is tested for impairment. If the
goodwill impairment test at the consolidated level results in the recognition of an impairment loss, that
loss is recognized in the consolidated financial statements and does not change the amount of goodwill
impairment recognized in the subsidiary financial statements. The difference between the impairment loss
recognized at the subsidiary level and an impairment loss reported by the consolidated parent, if any, will
result in a recurring consolidating adjustment.
Similarly, a goodwill impairment loss recognized by a parent is not “pushed down” to the subsidiary. Rather,
the subsidiary will apply ASC 350-20 in its own standalone financial statements. However, if the parent
recognizes a goodwill impairment loss in the reporting unit(s) that includes a separate reporting subsidiary,
that subsidiary should consider if a goodwill impairment indicator exists with respect to its goodwill.
3.14 Disposal of all or a portion of a reporting unit

Derecognition
350-20-40-1
When a reporting unit is to be disposed of in its entirety, goodwill of that reporting unit shall be
included in the carrying amount of the reporting unit in determining the gain or loss on disposal.
350-20-40-2
When a portion of a reporting unit that constitutes a business (see Section 805-10-55) or nonprofit
activity is to be disposed of, goodwill associated with that business or nonprofit activity shall be included
in the carrying amount of the business or nonprofit activity in determining the gain or loss on disposal.
350-20-40-3
The amount of goodwill to be included in that carrying amount shall be based on the relative fair values
of the business or nonprofit activity to be disposed of and the portion of the reporting unit that will be
retained. For example, if a reporting unit with a fair value of $400 is selling a business or nonprofit
activity for $100 and the fair value of the reporting unit excluding the business or nonprofit activity
being sold is $300, 25 percent of the goodwill residing in the reporting unit would be included in the
carrying amount of the business or nonprofit activity to be sold.
350-20-40-4
However, if the business or nonprofit activity to be disposed of was never integrated into the reporting
unit after its acquisition and thus the benefits of the acquired goodwill were never realized by the rest
of the reporting unit, the current carrying amount of that acquired goodwill shall be included in the
carrying amount of the business or nonprofit activity to be disposed of.

350-20-40-5
That situation might occur when the acquired business or nonprofit activity is operated as a standalone
entity or when the business or nonprofit activity is to be disposed of shortly after it is acquired.
350-20-40-6
Situations in which the acquired business or nonprofit activity is operated as a standalone entity are
expected to be infrequent because some amount of integration generally occurs after an acquisition.
350-20-40-7
When only a portion of goodwill is allocated to a business or nonprofit activity to be disposed of, the
goodwill remaining in the portion of the reporting unit to be retained shall be tested for impairment in
accordance with paragraphs 350-20-35-3A through 35-19 using its adjusted carrying amount.
The goodwill of a reporting unit that is to be disposed of in its entirety is included as part of the carrying
amount of the net assets to be disposed of in determining the gain or loss on disposal. When some
portion but not all of a reporting unit is disposed of and that portion constitutes a business or nonprofit
activity, some of the goodwill of the reporting unit should be assigned to the portion of the reporting unit
being disposed of. No goodwill would be assigned to a portion of a reporting unit being disposed of if it does
not meet the definition of a business or nonprofit activity. Section 2.1.3 of our FRD, Business combinations,
provides guidance in determining whether a group of assets constitutes a business under ASC 805.
When a portion of a reporting unit is disposed of and that portion constitutes a business or nonprofit
activity, the assignment of goodwill is based on the relative fair values of the portion of the reporting unit
being disposed of (i.e., the business or nonprofit activity) and the portion of the reporting unit remaining.
This approach requires a determination of the fair value of both the business or nonprofit activity to be
disposed of and the business (or businesses) or nonprofit activity within the reporting unit that will be
retained. For example, if the fair value of the entire reporting unit prior to the disposal is $1,000, the fair
value of the portion of the reporting unit being disposed of is $300 and the fair value of the portion of
the reporting unit being retained is $700, then 30% of the goodwill in the reporting unit would be included
in the carrying amount of the business or nonprofit activity to be sold. Following the assignment, the
goodwill of the remaining reporting unit is tested for impairment even though it may be between annual
impairment test dates.
In some circumstances, a business or nonprofit activity that represents a portion of a reporting unit may
not have been disposed of at the balance sheet date but may qualify as held for sale pursuant to ASC 205-
20 or ASC 360-10. As previously discussed, the initial allocation of goodwill to the disposal group would be
based on the relative fair values of the portion of the reporting unit being disposed of and the portion of
the reporting unit remaining.
When the disposition will occur in a subsequent reporting period, a question arises about whether an entity
must continue to reassess the allocation of goodwill to the disposal group at each reporting date and the
date on which the disposal occurs. We believe that a reassessment may be appropriate if the relative fair
values of the business or nonprofit activity to be disposed of and the reporting unit to be retained may
have significantly changed (e.g., when there has been a significant change in market conditions). However,
if the entity reorganizes its reporting structure in connection with the planned disposition such that the
disposal group represents a new reporting unit, no reassessment would be performed in subsequent
reporting periods. See section 3.12 for further discussion involving reorganization of a company’s reporting
structure. Refer to section 4.1.3.1 in our FRD, Impairment or disposal of long-lived assets, for further
discussion on allocating goodwill to a disposal group.
This relative fair value approach is not used when the business or nonprofit activity to be disposed of was
never integrated into the reporting unit after its acquisition (e.g., a business or nonprofit activity operated
as a standalone entity or a business or nonprofit activity that is to be disposed of shortly after acquisition).
In that case, the current carrying amount of the acquired goodwill should be included in the carrying

amount of the business to be disposed of because the rest of the reporting unit never realized the benefits
of the acquired goodwill. The FASB notes that situations in which the acquired business or nonprofit
activity is operated as a standalone entity would be infrequent because some amount of integration
generally occurs after an acquisition.
An issue arises when a business, nonprofit activity or reporting unit is disposed of that includes the net
assets and operations of a prior acquisition, but a portion of the goodwill arising from that acquisition
(i.e., the synergistic goodwill) had been assigned to a reporting unit that was not disposed of. In that
scenario, part of the cost basis of that prior acquisition remains recorded as goodwill in the reporting unit
retained even though all of the operations and net assets of that prior acquisition were disposed. In this
case, we believe that the entity should consider whether the reporting unit to which that synergistic
goodwill was assigned has experienced a goodwill impairment indicator because the benefit that gave
rise to the assignment of goodwill is now disposed of.
3.14.1 Change in parent’s ownership interest results in loss of control

Under ASC 810-10, when a company that has a controlling financial interest in a business ceases to have
a controlling financial interest either through a sale of its interest or other means described in that
guidance, the company derecognizes the assets and liabilities of the company, including goodwill. The
carrying amount of the net assets of the company being derecognized, including goodwill, is used in
computing the gain or loss. The goodwill derecognized is no longer assigned to a reporting unit for
purposes of impairment testing.
3.14.2 Assigning goodwill to a business transferred in a common control transaction

Often, an entity will transfer a business to another entity (receiving entity) in a common control transaction.
If the transferred business is part of a larger reporting unit at the consolidated entity level and the parent has
not previously pushed down the goodwill to the transferred business, questions arise in practice regarding
the amount of goodwill that should be assigned to the transferred business by the transferring entity.
Depending on the facts and circumstances, we believe the following two options may be used by the
transferring entity to assign goodwill to the transferred business for purposes of determining the
carrying amount of the business being disposed of:
• The goodwill of the reporting unit can be assigned to the transferred business based on the relative fair
values of the retained portion of the reporting unit and the transferred business on the date of transfer.
• The historical cost approach in ASC 805-50-30-5 can be used to identify the goodwill value assigned
to the transferred business in the original acquisition.
In accordance with ASC 350-20, the transferring entity is required to test the remaining goodwill for impairment.
Regardless of the option used by the transferring entity to assign goodwill to the transferred business, the
receiving entity in the common control transaction will record the transferred goodwill at the ultimate
parent’s historical cost in accordance with ASC 805-50-30-5. This may result in a difference between the
goodwill assigned to the transferred business by the transferring entity and the goodwill recorded by the
receiving entity.
Companies should determine the appropriate assignment method based on the specific facts and
circumstances.
Although the balance of goodwill would not change at the ultimate parent entity on a consolidated basis,
the ultimate parent entity would need to consider whether there has been a change in the composition of
its reporting units as a result of the reorganization transaction. See guidance in section 3.12 as it relates
to the approach followed when reassigning goodwill to reporting units following a reorganization.

3.14.3 Assignment of goodwill in a spin-off

3.14.3.1 Accounting by parent
When an entity spins off a reporting unit(s) or a component(s) of a reporting unit that constitutes a
business as defined under ASC 805, goodwill of the reporting unit should be assigned to the business
being spun off. That is, any goodwill assigned to the business being spun off would be derecognized from
the parent’s balance sheet. Goodwill is assigned to the business being spun off using the relative fair
value approach discussed in section 3.14.
3.14.3.2 Accounting by spinnee

Goodwill recognized in the spinnee’s balance sheet may differ from the amount assigned by the parent based
on the relative assignment process. While the parent’s accounting follows the relative fair value approach,
we believe a “historical goodwill concept” generally would be applied in the standalone financial statements
of the spinnee. Under this concept, any acquisition-specific goodwill related to a previous acquisition of an
entity that would be included in the spin-off would be presented in the stand-alone financial statements of
the business being spun off. The standalone entity would be required to identify its reporting units and
perform a goodwill impairment test for all prior periods. The goodwill impairment test at the standalone level
may yield an impairment charge that was not required to be recognized at the parent level.
Illustration 3-18: Assignment of goodwill in a spin-off
On 1 January 20X8, Company A acquires Company B for consideration transferred of $200 million.
The fair value of the identifiable net assets acquired is $160 million and goodwill is $40 million.
Company B will be placed in reporting unit RU 3. RU 3 also includes the net assets ($100 million) and
goodwill ($20 million) of Company C, which was acquired by Company A on 1 January 20X6. As part
of the Company B acquisition, Company A’s two other reporting units (RU 1 and RU 2) are expected to
benefit from the synergies of the combination. As such, Company A assigns goodwill of $30 million
to RU 3, $6 million to RU 1 and $4 million to RU 2. Assume that prior to the acquisition, RU 1 and
RU 2 had no goodwill recorded. In addition, none of the acquired assets and assumed liabilities was
assigned to RU 1 or RU 2.
Net assets (excluding goodwill) $ 60 $ 50 $ 260(1) $ 370

Goodwill 6 4 50(2) 60
Total net assets $ 66 $ 54 $ 310 $ 430
On 1 January 20X1, Company A decides to spin off Company B. As of 1 January 20X1, the fair value
of RU 3 was $350 million ($245 million related to Company B and $105 million related to company C).
Analysis
Accounting by parent (Company A)
In determining the amount of goodwill to derecognize, Company A should use the relative fair value
approach. As such, Company A should derecognize goodwill of $35 million [($245 million/$350 million) x
$50 million] associated with the spin-off of Company B. Note that none of the goodwill assigned to RU
1 and RU 2 is considered in determining the amount of goodwill to derecognize. The remaining
goodwill balance in RU 3 should be tested for impairment in accordance with ASC 350-20-40-7.

Accounting by spinnee (Company B)

The standalone financial statements of the spinnee (Company B) would include goodwill of $40 million.
Because Company B has to account for the goodwill using the historical goodwill concept, the $40
million acquisition-specific goodwill related to Company A’s acquisition of Company B on 1 January
20X8 would be presented in the standalone financial statements of Company B.
__________________________
1
Company B’s net assets (excluding goodwill) of $160 million plus Company C’s net assets (excluding goodwill) of $100 million.
2
Company B’s goodwill of $30 million ($40 million less $10 million assigned to RU 1 and RU 2) plus Company C’s goodwill of
$20 million.
3.15 Goodwill impairment testing when a noncontrolling interest exists

350-20-35-57A
If a reporting unit is less than wholly owned, the fair value of the reporting unit and the implied fair
value of goodwill shall be determined in the same manner as it would be determined in a business
combination accounted for in accordance with Topic 805 or an acquisition accounted for in
accordance with Subtopic 958-805. Any impairment loss measured in the second step of the goodwill
impairment test shall be attributed to the parent and the noncontrolling interest on a rational basis. If
the reporting unit includes only goodwill attributable to the parent, the goodwill impairment loss would
be attributed entirely to the parent. However, if the reporting unit includes goodwill attributable to
both the parent and the noncontrolling interest, the goodwill impairment loss shall be attributed to
both the parent and the noncontrolling interest.
350-20-35-57B
If all or a portion of a less-than-wholly-owned reporting unit is disposed of, the gain or loss on disposal
shall be attributed to the parent and the noncontrolling interest.
Under ASC 805, when a company initially acquires a controlling, but less than 100%, interest in another
company, the acquiring company recognizes the assets acquired, liabilities assumed and any
noncontrolling interest at fair value (with limited exception) and recognizes goodwill to the extent that
the consideration transferred exceeds amounts assigned to the net identifiable assets acquired.
If a reporting unit is less than wholly owned, the fair value of the reporting unit and the implied fair value
of its goodwill is determined in the same manner as it would be determined in a business combination
pursuant to ASC 805. Any goodwill impairment that results from applying step two of the goodwill
impairment model is attributed to the controlling and noncontrolling interests on a rational basis.
While the allocation of earnings to the controlling and noncontrolling interests often will be as straightforward
as multiplying earnings by the relative ownership percentages, that approach will not be appropriate for
allocating goodwill impairment. Particular care must be taken when a premium is paid to obtain control of
an entity. And, as a result, the controlling and noncontrolling interests’ bases in acquired goodwill may not
be proportional to their ownership interests because the premium may not be allocated proportionately to
the controlling and noncontrolling interests. Refer to section 4.6.2 of our FRD, Business combinations, for
additional discussion on attribution of a premium between the controlling and noncontrolling interests.

The following is an example of allocating a goodwill impairment charge between a controlling and
noncontrolling interest when the control premium is determined to relate only to the controlling interest:
Illustration 3-19: Allocation of a goodwill impairment charge to the noncontrolling interest
XYZ Corp acquires 90% of the equity interest in ABC Corp for $400 million. XYZ Corp determines the
fair value of the noncontrolling interest of ABC Corp is $40 million. The fair value of the identifiable
net assets determined under ASC 805 is $300 million. XYZ Corp determined that ABC Corp should be
in a new reporting unit because ABC Corp is not economically similar to any of its other reporting
units. On the acquisition-date, the following was determined:
(in millions)
Fair value of consideration transferred $ 400
Fair value of noncontrolling interest 40 1
Total 440
Fair value of identifiable net assets (300)
Goodwill recognized 140
Goodwill attributable to controlling interest 130 2
Goodwill attributable to noncontrolling interest 10 3
1
The fair value of the noncontrolling interest is not proportionate to its ownership interest because the noncontrolling interest
is not expected to share ratably in all of the benefits expected to be generated by XYZ Corp.
2
The goodwill of $130 million attributable to the controlling interest is calculated as follows: [($400 million) — (90% x $300 million)].
3
The goodwill of $10 million attributable to the noncontrolling interest is calculated as follows: [($40 million) — (10% x $300 million)].
One year after the acquisition, a new company opened for business that directly competes with the
newly acquired reporting unit of XYZ Corp. Due to this new competition, revenues of the newly formed
reporting unit declined. As a result, the fair value of the reporting unit falls to $380 million. For this
example, assume there were no indicators of impairment evident prior to XYZ Corp’s annual
assessment and no change in the fair value of the identifiable net assets. In addition, no other
impairment under ASC 360-10 is required to be recognized. The effects of taxes have been ignored.
Test for impairment

Step 1: (in millions)
Fair value of reporting unit $ 380
Carrying amount of reporting unit 440
Passed / (Failed) (60)4
Step 2:
Fair value of 100% identifiable net assets 300
Implied goodwill 80
Carrying amount of goodwill 140
Impairment loss (60)
Goodwill impairment loss attributable to the controlling interest $ 56 5
Goodwill impairment loss attributable to the noncontrolling interest $ 46
_____________________________________
4
Step 1 of the goodwill impairment test failed as the carrying amount exceeded the fair value of the reporting unit.
5
The impairment loss is attributed based on the relative interest of the goodwill on the acquisition date. The goodwill impairment
loss of $56 million attributable to the controlling interest is calculated as follows: [($130 million/$140 million) x $60 million].
6
loss of $4 million attributable to the noncontrolling interest is calculated as follows: [($10 million/$140 million) x $60 million].

3.15.1 Goodwill generated before the effective date of the guidance in ASC 810
If a reporting unit includes goodwill that is attributable only to a parent’s basis in a partially owned
subsidiary for which acquisition accounting was completed pursuant to Statement 141, any goodwill
impairment charge (whether recognized before or after the provisions of ASC 810 are adopted) would be
attributed entirely to the parent.
Because a business combination achieved in stages and accounted for under Statement 141 (and
Accounting Principles Board (APB) 16) followed step acquisition accounting (that is, the noncontrolling
interest was not initially measured at fair value), it is inappropriate to determine the noncontrolling
interest’s basis in any goodwill recognized using its relative ownership in the subsidiary. Given the
prohibition on retroactively applying ASC 805, the goodwill recognized by the controlling interest should
continue to be respected, even after the provisions of ASC 805 and ASC 810 are adopted. This is
because the noncontrolling interest does not have a basis in the goodwill arising from acquisitions
accounted for under Statement 141 or APB 16, if the goodwill becomes impaired after the provisions of
ASC 810 are adopted, the entire impairment charge would be allocated to the controlling interest.
3.15.2 Reallocation of goodwill upon changes in a parent’s ownership interest

ASC 810 requires that changes in a parent’s ownership interest in a subsidiary while the parent retains
its controlling financial interest are to be accounted for as equity transactions. Neither gains nor losses
on those transactions are recognized in net income, and the carrying amounts of the subsidiary’s assets
(including goodwill) and liabilities should not be changed. In accounting for such transactions under
ASC 810, the carrying amount of the noncontrolling interest should be increased/decreased to reflect
the change in the noncontrolling interest’s ownership in the subsidiary’s net assets (that is, the amount
attributed to the additional noncontrolling interests should reflect its proportionate ownership
percentage in the subsidiary’s net assets acquired).
For impairment testing purposes, we believe goodwill should be reallocated between the controlling and
noncontrolling interests based on the changes in ownership interests. See below for an illustration of
this concept:
Illustration 3-20: Reallocation of goodwill upon a change in parent’s ownership interest
On 1 January 20X3, Parent pays $920 in cash to acquire 80% of Subsidiary, which owns net assets
with a fair value of $1,000. The fair value of the 20% noncontrolling interest on the acquisition date is
$220. The business combination is accounted for under ASC 805 and $140 [($920 + $220) —
$1,000] of goodwill is recognized ($120 [$920 — (80% x $1,000)] attributable to Parent and $20
[$220 — (20% x $1,000)] attributable to the noncontrolling interest, due to the existence of a control
premium that does not benefit the controlling and noncontrolling shareholders proportionately).
The table below summarizes Parent’s and the noncontrolling interest holders’ share of the net assets
and goodwill of Subsidiary as of the acquisition date:
Share of Share of
net assets goodwill Total
Parent $ 800 $ 120 $ 920

Noncontrolling interest 200 20 220
Total $1,000 $ 140 $1,140
On 30 June 20X3, Parent acquires an additional 5% interest in Subsidiary for $60 cash. For illustrative
purposes, the total fair value of the net assets of Subsidiary as of 30 June 20X3 is still $1,000.

Analysis
With the acquisition of an additional 5% interest, Parent’s ownership interest increased to 85%. Parent
acquired 25% (5% / 20%) of the noncontrolling interest balance at 30 June 20X3, or $55 ($220 x 25%).
This would result in goodwill of $5 (25% x $20) being reallocated from the noncontrolling interest
to Parent.
Parent would record the following journal entry to reflect its acquisition of the additional 5% interest:
Noncontrolling interest ($220 x 25%) $ 55

Equity of Parent 5
Cash $ 60
and goodwill of Subsidiary after Parent’s acquisition of the additional 5% interest:
Share of Share of
Parent $ 850 $ 125 $ 975

Total $ 1,000 $ 140 $ 1,140
The illustration above describes a scenario in which a parent increased its ownership interest in a
subsidiary. If a parent decreases its ownership interest in a subsidiary (either by selling a portion of the
subsidiary’s shares it holds or causing the subsidiary to issue new shares), we believe the above
methodology is also appropriate. Because ASC 350 does not specifically address this circumstance, there
may be diversity in practice and as such other alternatives may also be acceptable.
3.16 Tax effects of goodwill impairments

See section 11.8 in our FRD, Income taxes, for a discussion of the tax implications pertaining to the
impairment of identifiable intangible assets and goodwill.
3.17 Goodwill related to equity method investments

350-20-35-58
The portion of the difference between the cost of an investment and the amount of underlying equity
in net assets of an equity method investee that is recognized as goodwill in accordance with paragraph
323-10-35-13 (equity method goodwill) shall not be amortized.
350-20-35-59
However, equity method goodwill shall not be reviewed for impairment in accordance with this
Subtopic. Equity method investments shall continue to be reviewed for impairment in accordance with
paragraph 323-10-35-32.

ASC 323-10-35-13 requires that an equity method investor account for the difference between its cost
basis in the investee and the investor’s interest in the underlying net book value of the investee as if the
investee were a consolidated subsidiary. When an investee meets the definition of a business, any excess
of the cost of the investment over the proportional fair value of the assets and liabilities of the investee is
reflected in the “memo” accounts as goodwill, commonly referred to as “equity method goodwill.”
The investor’s unit of account for evaluating impairment associated with an equity method investment
is the investment as a whole. Any equity method goodwill is not amortized and is not separately tested
for impairment under the provisions of ASC 350. Refer to section 6.8 of our FRD, Equity method
investments and joint ventures, for a discussion of testing for other-than-temporary impairment of an
equity method investment.
Goodwill on the investee’s balance sheet is subject to the ASC 350-20 requirements in the investee’s
separate financial statements. An equity method investor recognizes its portion of an equity method
investee’s goodwill impairment charge, adjusted for any basis differences. Further, if an equity method
investee recognizes a goodwill impairment loss, the investor should consider whether its carrying
amount of the investee might be impaired. See sections 5.4.1 and 6.10.1 in our FRD, Equity method
investments and joint ventures, for further discussion about equity method goodwill and investor
accounting for impairments recognized by the investee, respectively.
3.18 Goodwill resulting from a subsidiary’s acquisition of an entity

A consolidated subsidiary that acquires another business in a business combination should reflect all of
the goodwill resulting from the acquisition in its separate financial statements, regardless of the amount
of goodwill that the parent assigns to the reporting unit in which the subsidiary resides.
Illustration 3-21: Goodwill resulting from an acquisition by a subsidiary
Assume the operations of Subsidiary A are included, in their entirety, in Reporting Unit 1 of the Parent.
Subsidiary A acquires Target and the acquisition results in goodwill of $100 million. The Parent
believes that synergies related to the acquisition will benefit both Reporting Unit 1 and Reporting Unit 2
and, therefore, assigns $80 million of the acquired goodwill to Reporting Unit 1 and $20 million to
Reporting Unit 2.
Analysis
Subsidiary A should recognize $100 million of goodwill in its separate financial statements and assign
that goodwill to its reporting units in accordance with ASC 350-20.
3.19 Deferred income taxes

350-20-35-61
Paragraph 805-740-25-3 through 25-4 states that deferred income taxes are not recognized for any
portion of goodwill for which amortization is not deductible for income tax purposes. For guidance on
recognition of deferred income taxes related to goodwill when amortization of goodwill is deductible
for tax purposes, see paragraphs 805-740-25-6 through 25-9.
ASC 740 states that deferred taxes are not recognized for any portion of goodwill for which amortization
is not deductible for tax purposes. However, deferred taxes are recognized for certain portions of
goodwill that are deductible for tax purposes (ASC 805-740-25-8 and 25-9). See our FRD, Income taxes,
for further information on the accounting for tax-deductible goodwill.

3A Subsequent accounting for goodwill
(after the adoption of ASU 2017-04)
3A.1 Measurement and recognition of goodwill impairment

Overall Accounting for Goodwill
350-20-35-1
Goodwill shall not be amortized. Instead, goodwill shall be tested at least annually for impairment at a
level of reporting referred to as a reporting unit. (Paragraphs 350-20-35-33 through 35-46 provide
guidance on determining reporting units.)
350-20-35-2
Impairment of goodwill is the condition that exists when the carrying amount of a reporting unit that
includes goodwill exceeds its fair value. A goodwill impairment loss is recognized for the amount that
the carrying amount of a reporting unit, including goodwill, exceeds its fair value, limited to the total
amount of goodwill allocated to that reporting unit. However, an entity shall consider the related
income tax effect from any tax deductible goodwill, if applicable, in accordance with paragraph 350-
20-35-8B when measuring the goodwill impairment loss.
350-20-35-3
An entity may first assess qualitative factors, as described in paragraphs 350-20-35-3A through 35-3G,
to determine whether it is necessary to perform the quantitative goodwill impairment test discussed in
paragraphs 350-20-35-4 through 35-13. If determined to be necessary, the quantitative impairment
test shall be used to identify goodwill impairment and measure the amount of a goodwill impairment
loss to be recognized (if any).
ASU 2017-04 eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of
today’s goodwill impairment test) to measure a goodwill impairment charge. Instead, entities will record
an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value
(i.e., measure the charge based on today’s Step 1). See section 3 for guidance on the subsequent
accounting for goodwill before the adoption of ASU 2017-04.
Under ASC 805, goodwill is recognized initially as an asset in the financial statements and is initially
measured as any excess of the acquisition-date amounts24 of the consideration transferred, any
noncontrolling interest and any equity interest previously held by the acquirer in the acquiree over the
acquisition-date amounts of the net identifiable assets acquired. Any acquired intangible assets that do not
meet the criteria for recognition as a separate asset are included in goodwill. For further information,
please refer to our FRD, Business combinations.
24
Generally, business combination accounting under ASC 805 requires all consideration transferred, any noncontrolling interest, any
previously held equity interests and assets acquired and liabilities assumed to be measured at their acquisition-date fair values, subject to
limited exceptions. Refer to our FRD, Business combinations, for additional guidance on accounting for business combinations.

3A Subsequent accounting for goodwill (after the adoption of ASU 2017-04)
ASC 350-20 addresses the subsequent accounting for goodwill, including the requirement that goodwill
should not be amortized but should be tested for impairment, at least annually, at a level within the
company referred to as the reporting unit. Goodwill cannot be tested for impairment at any level within
the company other than the reporting unit level. ASC 350-20 outlines the methodology used to determine
if goodwill has been impaired and to measure any loss resulting from an impairment. These requirements
are discussed in detail in the following sections.

350-20-35-3A
An entity may assess qualitative factors to determine whether it is more likely than not (that is, a
likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying
amount, including goodwill.
350-20-35-3B
An entity has an unconditional option to bypass the qualitative assessment described in the preceding
paragraph for any reporting unit in any period and proceed directly to performing the quantitative
goodwill impairment test. An entity may resume performing the qualitative assessment in any
subsequent period.
Quantitative Impairment Test

350-20-35-4
The quantitative goodwill impairment test, used to identify both the existence of impairment and the
amount of impairment loss, compares the fair value of a reporting unit with its carrying amount,
including goodwill.
350-20-35-5
value of a reporting unit.
350-20-35-6
If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is
considered not impaired.
350-20-35-8
If the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized
in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting
unit. Additionally, an entity shall consider the income tax effect from any tax deductible goodwill on
the carrying amount of the reporting unit, if applicable, in accordance with paragraph 350-20-35-8B
when measuring the goodwill impairment loss.
350-20-35-12
new accounting basis.
350-20-35-13
Subsequent reversal of a previously recognized goodwill impairment loss is prohibited once the
measurement of that loss is recognized.

Goodwill should not be amortized, but should be tested for impairment at the reporting unit level at least
annually in accordance with ASC 350-20. Impairment is the condition that exists when the carrying amount
of a reporting unit, including goodwill, exceeds its fair value. The fair value of a reporting unit must be
consistent with the definition of fair value under ASC 820, and must include both the controlling and
noncontrolling interests in the reporting unit. Goodwill is tested for impairment in accordance with the
following flowchart, taken from ASC 350-20-55-25:
Evaluate relevant events or
circumstances to determine whether it
is more likely than not that the fair
value of a reporting unit is less than its
carrying amount.1
Is it more likely than not

that the fair value of the No
reporting unit is less than
its carrying amount?
Yes
Quantitative Impairment Test Stop. No goodwill

Calculate the fair value of the reporting unit and compare impairment recognized.
it with its carrying amount, including goodwill.
Yes
Yes
Is the fair value No

of the reporting unit less
than its carrying amount?
Yes
Recognize impairment equal
to the difference between
Is the difference the carrying amount of
between the carrying the reporting unit and
No
amount and fair value greater than its fair value, considering
the carrying amount of goodwill the related income tax
allocated to the effect from any tax-
reporting unit? deductible goodwill,
if applicable, as described in
paragraph 350-20-35-8B.
Yes
Recognize impairment equal to the

total carrying amount of goodwill
allocated to the reporting unit.
1
An entity has the unconditional option to skip the qualitative assessment and proceed directly to calculating the fair value of the
reporting unit and comparing that value with its carrying amount, including goodwill.

3A.1.1 Optional qualitative assessment

350-20-35-3C
In evaluating whether it is more likely than not that the fair value of a reporting unit is less than its
carrying amount, an entity shall assess relevant events and circumstances. Examples of such events
and circumstances include the following:
a. Macroeconomic conditions such as a deterioration in general economic conditions, limitations on

credit markets
b. Industry and market considerations such as a deterioration in the environment in which an entity
metrics (consider in both absolute terms and relative to peers), a change in the market for an
entity’s products or services, or a regulatory or political development
c. Cost factors such as increases in raw materials, labor, or other costs that have a negative effect
on earnings and cash flows
d. Overall financial performance such as negative or declining cash flows or a decline in actual or
e. Other relevant entity-specific events such as changes in management, key personnel, strategy, or
f. Events affecting a reporting unit such as a change in the composition or carrying amount of its
net assets, a more-likely-than-not expectation of selling or disposing of all, or a portion, of a
reporting unit, the testing for recoverability of a significant asset group within a reporting unit,
or recognition of a goodwill impairment loss in the financial statements of a subsidiary that is a
component of a reporting unit
g. If applicable, a sustained decrease in share price (consider in both absolute terms and relative
to peers).
350-20-35-3D
If, after assessing the totality of events or circumstances such as those described in the preceding
paragraph, an entity determines that it is not more likely than not that the fair value of a reporting unit is
less than its carrying amount, then the quantitative goodwill impairment test is unnecessary.
350-20-35-3E
If, after assessing the totality of events or circumstances such as those described in paragraph
350-20-35-3C(a) through (g), an entity determines that it is more likely than not that the fair value of
a reporting unit is less than its carrying amount, then the entity shall perform the quantitative goodwill
impairment test.

350-20-35-3F
The examples included in paragraph 350-20-35-3C(a) through (g) are not all-inclusive, and an entity
a reporting unit in determining whether to perform the quantitative goodwill impairment test. An
entity shall consider the extent to which each of the adverse events and circumstances identified could
affect the comparison of a reporting unit’s fair value with its carrying amount. An entity should place
more weight on the events and circumstances that most affect a reporting unit’s fair value or the
carrying amount of its net assets. An entity also should consider positive and mitigating events and
circumstances that may affect its determination of whether it is more likely than not that the fair value
of a reporting unit is less than its carrying amount. If an entity has a recent fair value calculation for a
reporting unit, it also should include as a factor in its consideration the difference between the fair
value and the carrying amount in reaching its conclusion about whether to perform the quantitative
goodwill impairment test.
350-20-35-3G
and circumstances in the context of determining whether it is more likely than not that the fair value of a
reporting unit is less than its carrying amount. None of the individual examples of events and circumstances
included in paragraph 350-20-35-3C(a) through (g) are intended to represent standalone events or
circumstances that necessarily require an entity to perform the quantitative goodwill impairment test.
Also, the existence of positive and mitigating events and circumstances is not intended to represent a
rebuttable presumption that an entity should not perform the quantitative goodwill impairment test.
ASC 350 requires companies to test goodwill for impairment annually and more frequently if indicators of
impairment exist. Testing goodwill for impairment requires companies to compare the fair value of a reporting
unit with its carrying amount, including goodwill. ASC 350 also provides for an optional qualitative assessment
for testing goodwill for impairment (qualitative assessment) that may allow companies to skip the annual
quantitative impairment test. The qualitative assessment permits companies to assess whether it is more
likely than not (i.e., a likelihood of greater than 50%) that the fair value of a reporting unit is less than its
carrying amount. If a company concludes based on the qualitative assessment that it is more likely than not
that the fair value of a reporting unit is less than its carrying amount, the company is required to perform the
quantitative impairment test. If a company concludes based on the qualitative assessment that it is not
more likely than not that the fair value of a reporting unit is less than its carrying amount, it has completed
its goodwill impairment test and does not need to perform the quantitative impairment test.
While the qualitative assessment may change how goodwill impairment testing is performed, it does not
affect the timing or measurement of goodwill impairment.
It is important to understand that the ASC 350 impairment model differs from an other-than-temporary-
impairment model. Under ASC 350, management must analyze the relationship between a reporting unit’s
fair value and its carrying amount as of the impairment test date. This analysis does not include a
determination by management of whether a decline in fair value is temporary.
3A.1.1.1 Key considerations

The qualitative assessment gives companies the option to evaluate, based on the weight of evidence, the
significance of all identified events and circumstances in the context of determining whether it is more
likely than not that the fair value of a reporting unit is less than its carrying amount. It does not prescribe
how to weigh positive and negative evidence when both affect the fair value of a reporting unit, nor does
it define the term “significance.”

3A.1.1.1.1 Weighing evidence

ASC 350 directs companies to place more weight on the events and circumstances that most affect a
reporting unit’s fair value or the carrying amount of its net assets. Weighing the effect of various positive
and negative factors may be challenging and will require the use of significant judgment. Companies will
have to monitor and evaluate all positive and negative events that have occurred since the most recent
The qualitative assessment is distinct from other impairment evaluations in that it requires a company to
evaluate all events and circumstances, including both positive and negative events, in their totality to
determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying
amount. Other asset impairment models (e.g., long-lived assets to be held and used (including finite-lived
intangible assets)) do not require weighing positive and negative evidence, but rather require companies to
identify certain interim triggering events.25 A quantitative impairment test is required only if one (or more)
of the triggering events occurred, causing the company to believe that the event(s) indicated that a potential
impairment had arisen (i.e., that it is more likely than not that the fair value of the reporting unit is less than
its carrying amount).
This concept of weighing the effect of various factors may be more difficult and will likely require a more
rigorous evaluation than the previous requirement to identify negative factors.
3A.1.1.1.2 Meaning of ‘significant’

The FASB refers to but does not define the concept of “significant” in ASC 350 or in the Basis for
Conclusions of ASU 2011-08. Accordingly, questions have arisen about whether there are any bright-line
rules for performing qualitative assessments (i.e., whether the existence of any particular circumstance
would always — or never — result in the requirement to perform the annual quantitative impairment test).
The Board did not establish any bright-line rules or provide an example of events or circumstances that would
always result in the conclusion that a quantitative impairment test is or is not necessary. Similarly, there are
no bright-line rules when using the term significant in other contexts (e.g., evaluating whether the fair value
exceeded the carrying amount by a significant amount in the most recent quantitative impairment test,
evaluating whether a change in an event or circumstance during the period has a significant effect on fair
value). Companies will have to evaluate all facts and circumstances to determine whether they believe, based
on all factors, it is more likely than not that the fair value of a reporting unit is less than its carrying amount.
3A.1.1.1.3 List of events and circumstances

ASC 350-20-35-3C includes a list of events and circumstances to consider when evaluating a reporting
unit’s goodwill for impairment. The factors considered for interim impairment evaluations were
developed by the Board to reflect the reasons that companies have disclosed as the causes of goodwill
impairments. The list of events and circumstances is as follows:
• Macroeconomic conditions such as a deterioration in general economic conditions, limitations on

accessing capital, fluctuations in foreign exchange rates or other developments in equity and
credit markets
• Industry and market considerations such as a deterioration in the environment in which an entity
operates, an increased competitive environment, a decline in market-dependent multiples or metrics
(consider in both absolute terms and relative to peers), a change in the market for an entity’s
products or services, or a regulatory or political development
• Cost factors such as increases in raw materials, labor or other costs that have a negative effect on
earnings and cash flows
25
As listed in ASC 350 and ASC 360.

• Overall financial performance such as negative or declining cash flows or a decline in actual or
• Other relevant entity-specific events such as changes in management, key personnel, strategy or
• Events affecting a reporting unit such as a change in the composition or carrying amount of its net assets,
a more-likely-than-not expectation of selling or disposing all, or a portion, of a reporting unit, the
testing for recoverability of a significant asset group within a reporting unit or recognition of a goodwill
impairment loss in the financial statements of a subsidiary that is a component of a reporting unit
• A sustained decrease in share price (consider in either absolute terms or relative to peers)
None of the factors listed above is determinative. In other words, the existence of one of these negative
factors by itself would not necessarily indicate that a quantitative impairment test must be performed.
Instead, a company must evaluate how significant each of the identified factors could be to the fair value
or carrying amount of a reporting unit, and weigh those factors against any positive or mitigating factors
relevant to that reporting unit. In addition, ASC 350-20-35-3F states clearly that the events and
circumstances it describes are only examples of factors a company should consider. Companies will need
to identify the factors that most affect a reporting unit’s fair value.
3A.1.1.2 Applying the qualitative assessment

While the specific factors that must be evaluated will vary depending on the reporting unit, company and
industry, we generally believe that the framework provided below will be useful for companies if they
choose to apply the qualitative assessment.
3A.1.1.2.1 Determine the starting point
Text Identify
fair value
We believe that companies should use the most recent calculation of a reporting unit’s fair value as a
starting point for the qualitative assessment. In doing so, companies should consider the amount of excess
fair value in that calculation as well as developments in its own operations, the industry in which it operates
and overall macroeconomic factors that could have affected fair value since the date of that calculation.
3A.1.1.2.1.1 Look at the excess fair value

The margin between the fair value and carrying amount in the most recent fair value calculation may
indicate the amount and severity of negative evidence that can be absorbed by a reporting unit.
However, as noted in section 3A.1.1.1.2, there is no percentage threshold that constitutes a significant
amount of excess fair value over carrying amount. Judgment must be applied to evaluate how much
negative evidence may cause a company to conclude that it can no longer make a more-likely-than-not
assertion about the fair value of a reporting unit.
Accordingly, we generally believe that companies that have reporting units whose fair values have
recently exceeded their carrying amounts by significant margins are likely to benefit from the qualitative
assessment. Companies that have recently recognized goodwill impairments or that do not have a
significant margin between the carrying amount and fair value of a reporting unit may find it challenging
to apply the qualitative assessment and may elect to move directly to the quantitative impairment test.

3A.1.1.2.1.2 Consider the market

When companies begin thinking about performing a goodwill impairment evaluation, they often look at
company-specific information, such as current-year and future financial performance. While this
information is crucial for determining whether it is more likely than not that a reporting unit’s fair value is
less than its carrying amount, companies also must consider external factors that could affect the fair
value or carrying amount of their reporting units.
Illustration 3A-1: Consider the market
Assume Company A is a public company with a reporting unit (RU) operating in the
telecommunications industry. In its qualitative assessment, Company A determined the following:
• The fair value of RU in the prior year’s quantitative impairment test exceeded its carrying amount
by 22%.
• RU’s revenues and operating margins increased 10% over the prior year and exceeded current-
year projections by 2%.
• RU gained two large customers in the current year, which account for 6% of current-year revenues.
Based on only these facts, Company A may conclude that it does not need to perform a quantitative
impairment test for RU. However, the following also occurred since the last fair value calculation was
performed:
• Overall equity markets are down 10% in the current year.
• RU’s competitors have experienced revenue growth of 15% to 20% over the prior year.
• Despite gaining two large customers, RU still lost 2% market share.
Based on the company-specific information alone, Company A appears to have a sufficient level of
positive evidence to support a qualitative assertion that RU’s goodwill is not impaired. However, once
the industry and market information is considered, the conclusion requires further consideration. With
this negative information (overall market decline, RU growing slower than industry and loss of market
share), it is clear that Company A must perform further analysis to determine the significance that
each of these factors and other relevant information may have on the fair value of RU and weigh such
factors into its qualitative assessment.
Illustration 3A-2: Consider the market
Assume the same facts as in Illustration 3A-1, except that the industry and market information since
the last fair value calculation was performed is as follows:
• Overall equity markets are up 5% in the current year.
• Other telecom companies operating in RU’s industry experienced revenue and operating margin
growth of 3% to 5% over the prior year.
• The two new customers caused RU’s market share to increase by 10%.
With this predominantly positive industry and market information, and assuming there are no further
negative factors to consider, Company A may have a sufficient level of positive evidence to support a
qualitative assertion that it does not need to perform the annual quantitative impairment test.

Weighing the positive and negative events that have occurred since the last fair value calculation may be
difficult, particularly when there are multiple positive and negative factors. Professional judgment must
be applied to all facts and circumstances to appropriately evaluate how such factors, in their totality,
ultimately affect the fair value of a reporting unit.
Question 3A.1 At what point can data from the most recent fair value calculation no longer be used to evaluate the
fair value calculation. Generally, the more time that has passed since the last fair value calculation, the
more challenging it may be to support applying the qualitative assessment or arriving at an impairment
conclusion based solely on a qualitative assessment. This is because an entity would need to consider a
cumulative analysis of the changes in events and circumstances since the last quantitative impairment test.
3A.1.1.2.1.3 Review changes to carrying amount

Another key aspect of determining the starting point for the qualitative assessment is for companies to
update the carrying amount of their reporting units to reflect the balance as of the testing date, including
allocating corporate assets and intercompany items that should be kept in the calculation for a reporting
unit (and not eliminated). This will provide another relevant data point about the relationship between
each reporting unit’s most recently calculated fair value and the level of effort that would be required to
apply the qualitative assessment. For example, if a reporting unit had a series of smaller acquisitions
since the most recent quantitative impairment test, the increase in the carrying amount could be larger
than if it had been adjusted by normal recurring operations alone.
3A.1.1.2.2 Identify the most relevant drivers of fair value
Identify
Text
Determine the
starting point relevant events and identified Conclude
fair value
In order to identify the most relevant drivers of fair value, companies should understand those
assumptions that are most likely to affect the fair value of a reporting unit. In doing so, a company should
understand the valuation method(s) that are appropriate to determine the fair value of each reporting
unit and the assumptions that are most likely to affect each method. As a starting point, companies may
want to consider the valuation method and drivers of fair value used in their last quantitative impairment
test to determine whether they are still relevant.
Understanding the assumptions that most affect the fair value of a reporting unit will enable companies
to focus their efforts on evaluating the key assumptions of the qualitative assessment so that those
factors are given more weight in the analysis. For example, drivers of fair value for a reporting unit that
is valued using the income approach may be cash flow projections, terminal growth rate or the WACC,
whereas the drivers of fair value for a reporting unit that is valued using the market approach may be
applicable industry multiples such as multiples of revenue or EBITDA. Regardless of the method used for
determining and calculating fair value for a reporting unit in the past (e.g., income approach, market
approach), it is important to remember that the determination of fair value is based on a market
participant concept.

Once a company identifies the key assumptions involved, it should determine how sensitive those
assumptions are to market and industry factors that occurred during the period since the last
quantitative impairment test. The following three illustrations highlight specific procedures that a
company should consider performing depending on the most significant drivers of value that it identifies.
These illustrations are not meant to indicate that these are the only procedures to perform or factors to
consider. Companies applying the qualitative assessment also must keep in mind that other facts may
still be relevant because the key drivers affecting fair value can evolve over time.
Illustration 3A-3: Drivers of value — income approach, external factors
In the prior year, Company A evaluated its consumer products reporting unit (RU 1) using the income
approach. In the current year, Company A has elected to apply the qualitative assessment to test
RU 1’s goodwill balance for impairment. As part of its qualitative assessment, Company A reviewed its
prior-year fair value calculation and determined that the fair value of RU 1 was most sensitive to
changes in the WACC.
Based on these facts, Company A should focus on revisiting the assumptions made in determining the
WACC in the prior year. In doing so, Company A could update those with more current-year
information (e.g., updated market risk premium, updated beta estimate, current risk-free rate,
company-specific risk premium) and evaluate how using the newly calculated WACC would change the
prior-year fair value calculation.
Illustration 3A-4: Drivers of value — income approach, internal factors
Assume the same facts in Illustration 3A-3, except that in reviewing the prior-year fair value
calculation, Company A determined that in addition to the external factors associated with WACC, the
fair value of RU 1 was most sensitive to changes in the expected growth rates over the forecast
period, which also affect the calculated terminal value. In that fact pattern, Company A should verify
the accuracy of its forecasts over the past few years by comparing its projections with actual results.
Company A should also evaluate the company-specific events and circumstances that have occurred
since the prior year’s calculation and consider their effect on management’s growth rate assumptions
for RU 1. In addition, since management’s growth rate assumption affects projections during both the
forecast period and the terminal period, Company A should verify that the growth rate assumptions
used to calculate the forecast period cash flows and the terminal value are internally consistent.
Illustration 3A-5: Drivers of value — market approach
In the prior year, Company A evaluated its reporting unit (RU 2) using the market approach. In the
current year, Company A has elected to apply the qualitative assessment to test RU 2’s goodwill
balance for impairment. As part of its qualitative assessment, Company A reviewed its prior-year fair
value calculation and determined that the fair value of RU 2 was most sensitive to changes in the
assumed industry multiples. Based on these facts, Company A should consider obtaining market data
on recent transactions and reviewing the multiples observed to determine the direction in which those
multiples would drive RU 2’s fair value.
For additional interpretive guidance on determining fair value, refer to our FRD, Fair value measurement.

3A.1.1.2.3 Identify events and circumstances
Identify Text
Determine the
starting point
fair value
After considering its starting point and identifying the key drivers of fair value for its reporting unit, a
company must identify the events and circumstances (including but not limited to those outlined in
ASC 350-20-35-3C) that may have an effect on the fair value of a reporting unit.
A company’s analysis of events and circumstances should focus on factors that have changed since the
last quantitative impairment test. Using the most recent fair value calculation as the starting point and
focusing on changes in events and circumstances will indicate how a current-period fair value calculation
may compare with the last quantitative impairment test.
In assessing which events and circumstances most affect the fair value of a reporting unit, a company
should consider how it describes its business, risk factors and accounting policies in its annual report and
other public filings as well as in any other public forums, including its company website and earnings
calls. We believe that management’s qualitative assessment should be consistent with how it views and
discusses the reporting unit. Accordingly, the assertions made by management in its qualitative assessment
should be consistent with statements made to the public regarding the future state of the business
(whether formally in its annual report or informally on an earnings call) and/or with the projected
financial information being provided to the board of directors and other stakeholders. In their analyses,
companies should also consider information that has not yet been disclosed publicly, such as pending
litigation or plans to enter new or exit existing service lines.
3A.1.1.2.3.1 Cumulative analysis

The qualitative assessment must consider all events and circumstances since the most recent fair value
calculation was performed. It is important for companies to remember that this requires a cumulative
analysis of factors rather than a review of events that transpired during the current year.
Illustration 3A-6: Cumulative analysis
In each of the last three years, Company A has applied the qualitative assessment for one of its
reporting units (RU 1) and concluded that a quantitative impairment test was not necessary. The
results of the most recent fair value calculation (i.e., as of four years ago) indicated that the fair value
of the reporting unit exceeded its carrying amount by 44%. Company A has considered the following in
its current-year qualitative assessment for RU 1:
• Revenue for RU 1 increased 7% over the prior year.
• Gross margin increased 3% year to date from the same period last year (mostly due to “bolt-on”
acquisitions).
• The overall S&P 500 Index is 12% lower than it was at the last measurement date, and public
entities within RU 1’s industry are down a more modest 3%.

Analysis
While the market and industry information included in Company A’s analysis provides information
since the last fair value calculation, the company-specific information focuses too narrowly on current-
year events. As time goes on, the relevance of the most recent fair value calculation diminishes. The
excess fair value that existed four years ago is no longer as precise as it was on the date of the
calculation, as various factors have occurred since then that will change both the fair value and the
carrying amount of the reporting unit. All events and circumstances that have transpired since the last
quantitative impairment test must be considered.
In addition to the factors already considered, Company A should assess how RU 1 has performed for
the cumulative three-year period leading to the current-year evaluation. Additionally, Company A
should consider that it may have more difficulty determining the likelihood of an impairment based on
qualitative factors alone since the current-year increase is driven largely by acquisitions. In addition,
if RU 1 has done a number of similar small bolt-on acquisitions over the past three years, the ratio
of excess fair value to the increased carrying amount will need to be considered. However, if RU 1
showed internal growth in revenue and gross margins in each of the three previous years, that positive
evidence, absent other negative factors, may tip the scale in favor of a conclusion that the qualitative
assessment is appropriate for assessing RU 1’s goodwill for impairment.
Companies should develop policies and controls for weighing evidence over a longer period of time, as
required by the qualitative assessment.
3A.1.1.2.4 Weigh the identified factors
Identify Text
Determine the
starting point
fair value
Once a company identifies the events and circumstances that most affect the fair value of a reporting
unit, it must weigh all factors in their totality to determine whether they support a conclusion that it is
more likely than not that a reporting unit’s fair value is less than its carrying amount. Given the potential
for many events and circumstances to affect the fair value of a reporting unit, it is crucial for companies
to give more weight in their qualitative assessments to those factors that most affect fair value.
Illustration 3A-7: Weighing factors
Company A is a public company with multiple reporting units operating in the media and entertainment
industry. Company A has identified the following positive and negative evidence about the fair value of
its publishing reporting unit (Pub), which sells both physical and digital books:
• Two years ago, Pub recorded a goodwill impairment charge, due in large part to the overall decline
in the economy and the valuation of the publishing industry. As the economy started to recover,
Pub’s prior-year quantitative impairment test concluded that the fair value of the reporting unit
exceeded its carrying amount by 18%.
• As the industry has rebounded from the lows of two years ago, revenue for the past two years
increased by 12% and 7%, respectively. However, increased competition in the publishing industry
resulted in declines in gross margins over the past two years of 2% and 3%, respectively.

• Four months ago, a retail bookseller that accounted for 7% of Pub’s gross margin filed for
bankruptcy protection and left the industry. However, Pub is exploiting new digital distribution
networks that it expects to account for 4% of its gross margin. Pub’s two largest remaining
physical distribution customers account for 45% of its gross margin.
• Pub’s president retired during the year and was replaced by the chief operating officer of a
smaller competitor.
• During the last year, the overall S&P 500 Index is 8% lower than it was at the last measurement
date and public entities in the publishing industry are down 12%.
• Pub’s carrying amount increased by 2%.
Analysis
Company A will have to weigh the various positive and negative events above in performing its
qualitative assessment. However, Company A can simplify its analysis by giving more weight to the
drivers of fair value that most affect the fair value of Pub.
The impairment charge that Pub recorded two years ago is not significant to the current analysis.
Given the fact that Pub’s fair value was 18% greater than its carrying amount a year ago, there was
clearly an improvement in the fair value of Pub subsequent to the impairment being recorded.
Another factor that Company A may give less weight to is the positive effects of increases in revenues.
Since gross margins are declining while revenues are growing, that revenue growth could be driven by
the overall rebound in the economy from two years ago. Although the high-percentage revenue
growth appears positive, it is not increasing at the same pace as expenses, likely resulting in declining
value overall.
Similarly, Company A may determine that the relatively quick replacement of the reporting unit’s
president with an executive of a competitor with industry experience weighs less on the fair value
calculation than other factors. However, if the president was a prominent figure in the industry and a
significant factor in the market valuation of the company and the departure was unexpected and/or
without a transition plan, this factor may have a significant effect on the fair value of the reporting unit.
The bankruptcy of the physical retailer and expansion into digital distribution representing a negative
7% and positive 4% effect on gross margin, respectively, could potentially cancel each other out and
will have less weight on the overall analysis. However, the deterioration of the physical market (which
is not fully being offset by gains in the digital market) should be evaluated to see whether this is an
ongoing trend that could indicate future projections should be updated to reflect diminishing revenues.
Lastly, the company should evaluate the contract terms and financial health (e.g., creditworthiness) of
Pub’s two largest remaining physical customers because this assessment will likely have a larger effect
on the fair value of Pub.
In addition to the weight of the factors as discussed above, Company A must consider the effect of the
overall declines in market and industry values and the change in Pub’s carrying amount in order to
make a qualitative conclusion about the fair value of Pub.
3A.1.1.2.4.1 Inverse relationship to level of documentation

As discussed in section 3A.1.1.2.1, the starting point for a qualitative assessment should be reviewing
the most recent fair value calculation and determining based on recent events the margin between fair
value and carrying amount. Illustration 3A-8 below indicates the level of effort that will be required to
perform the qualitative assessment depending on the amount of margin that existed in the last

Illustration 3A-8: Relationship between excess fair value over carrying amount in most recent
calculation and level of current-year documentation
As the graphic above indicates, the smaller the margin, the stronger the supporting evidence and the
more robust the documentation likely would need to be to qualitatively conclude that it is more likely
than not that a reporting unit’s fair value is less than its carrying amount. Conversely, the larger the
margin, the easier it may be to come to a conclusion about the fair value of a reporting unit using the
qualitative assessment.
When the margin is small, companies might also consider performing corroborative procedures, such as
comparing assumptions used in the current-year qualitative assessment with actual results in the market
and industry in which the reporting unit operates (e.g., analyst reports, recent public transactions).
Similarly, companies should remember that as time passes from the date of the most recent fair value
calculation, the less relevant that fair value calculation becomes.
3A.1.1.2.4.2 Sensitivity analyses

Since the concept of fair value is inherently quantitative (i.e., its end result is a value), in certain cases,
making a qualitative assertion about the fair value of a reporting unit may require supporting or
corroborating quantitative analysis. While determining the effect of an individual event or circumstance
may be straightforward, weighing various factors against each other will require additional judgment.
Due to the complexities of fair value calculations (under any method), weighing the factors that could
affect fair value may prove challenging without some sort of sensitivity analysis to help quantify which
factors most affect fair value.

Illustration 3A-9: Sensitivity analysis — market approach
Company A is a public oil and gas company with multiple reporting units based on geography. Assume
the following with respect to the US reporting unit (RU) of Company A:
• In the prior year’s quantitative impairment test, the fair value of RU exceeded its carrying amount
by 19%. Company A used the market approach to determine RU’s fair value.
• Overall equity markets are down 14% in the current year, and recent transactions in the oil and
gas industry indicate multiples have decreased 11% from the assumptions used in the prior year.
• Company A has not yet reviewed its company-specific factors from the prior year, and is
considering whether the declines in the oil and gas industry and overall market, absent offsetting
positive evidence, would have such a negative effect on the fair value of RU that Company A would
not be able to make a qualitative assertion that it is not more likely than not that the fair value of
RU is less than its carrying amount.
Analysis
In this fact pattern, because of the negative indicators, Company A could consider performing some sort
of sensitivity analysis on the fair value of RU before determining whether to proceed with the qualitative
assessment. By updating the assumptions used in the prior year’s fair value calculation to reflect the
declines in oil and gas multiples, Company A can quickly evaluate how sensitive its most recent fair value
is to the industry-wide declines in value. In doing this sensitivity comparison, Company A should also
update its carrying amount to reflect current-year information, which will provide a better indication of
whether Company A would pass the quantitative impairment test if all other factors remained the same.
If updating the assumptions to reflect current industry multiples causes the quantitative impairment
test from the prior year to fail (i.e., would result in goodwill impairment) and there are no other
significant offsetting positive factors, Company A likely would conclude that it should perform the
quantitative impairment test in the current year. Alternatively, if after reflecting the declines in
multiples and changes in carrying amounts the sensitivity analysis indicates that there is still excess
fair value, Company A may likely conclude that it will continue with the qualitative assessment and
identify and evaluate the other events and circumstances affecting fair value to complete its analysis.
Company A may also consider performing a breakeven sensitivity analysis to determine how low the
relevant market multiple would have to fall before it triggered impairment in the prior-year fair value
calculation. Company A could then evaluate the probability that RU would be subject to a market
multiple consistent with the implied breakeven market multiple. For example, if the market multiple
needed to decline by 5x for the fair value of RU to be less than its carrying amount, Company A may
conclude that the likelihood of potential impairment would be low and conclude that performing the
qualitative assessment would be sufficient. In contrast, if the market multiple needed to decline by
only 1x before triggering a potential impairment, the company may conclude that performing a
quantitative impairment test would be necessary.
Illustration 3A-10: Sensitivity analysis — income approach
Assume the same facts as in Illustration 3A-9, except that Company A used the income approach
(i.e., discounted cash flow method) to determine RU’s fair value. Additionally, the market
capitalizations of public US companies in the oil and gas industry also have declined on average 11%
from the time of the prior-year fair value calculation.

Analysis
In this fact pattern, Company A might consider performing a sensitivity analysis using the information
in the most recent fair value calculation. By updating the WACC used in the prior-year calculation to
better reflect the additional perceived risk related to companies operating in the oil and gas industry
and to capture any incremental risk specific to the RU and its projections, Company A could determine
the significance of the decline in equity values of its industry on its fair value calculation. If performing
this sort of sensitivity analysis causes the entity to fail the quantitative impairment test from the prior
year (i.e., there would be goodwill impairment) and there are no other significant offsetting positive
factors, Company A likely would conclude that it should perform the quantitative impairment test in
the current year.
Company A also may consider performing a breakeven sensitivity analysis to determine how high the
WACC would have to rise before it triggered impairment in the prior-year fair value calculation.
Company A could then evaluate the probability that RU would be subject to a WACC rate consistent
with the implied breakeven WACC. For example, if the WACC needed to rise by 10% for the fair value
of RU to be less than its carrying amount, Company A may conclude that the likelihood of potential
impairment would be low and conclude that performing the qualitative assessment would be sufficient.
In contrast, if the WACC needed to rise by only 1% before triggering a potential impairment, the
company may conclude that performing a quantitative impairment test would be necessary.
The illustrations above show how certain quantitative calculations may help support specific qualitative
assertions. However, it is important to remember that sensitivity analyses such as these should not be
performed without consideration of all facts and circumstances. The qualitative assessment requires an
evaluation of facts and circumstances in their totality to determine whether it is more likely than not that
the fair value of a reporting unit is less than its carrying amount.
Depending on the facts and circumstances for a particular reporting unit, a company might consider
involving external valuation specialists to help determine ranges for key assumptions to be used in the
sensitivity analysis.
For additional guidance on determining fair value, refer to our FRD, Fair value measurement.
3A.1.1.2.5 Conclude
Identify Text
Determine the
starting point
fair value
The final step in performing the qualitative assessment is to conclude. As a reminder, if a company
concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying
amount, it must perform the quantitative impairment test. If it concludes otherwise, it has completed its
goodwill impairment assessment and can skip the quantitative impairment test.
Concluding that a reporting unit has passed the qualitative assessment (i.e., that it is not more likely than
not that the fair value is less than the carrying amount) will require companies to apply significant
judgment. Clear documentation of the factors considered, including any necessary supporting evidence
or quantitative calculations, will be essential. Depending on the complexity of the reporting unit being
evaluated, it may also be necessary to obtain input from valuation specialists.

A lack of a thorough analysis of the effects of all significant events and circumstances on the fair value or
carrying amount of a reporting unit could lead to an incorrect conclusion. Developing clear, contemporaneous
documentation also will help a company support its conclusions if regulators raise questions.
3A.1.2 Reporting units with zero or negative carrying amounts

Paragraph BC35 of ASU 2017-04 notes that prior to adopting the standard, an entity was required to
perform a qualitative assessment to determine whether it was more likely than not that goodwill was
impaired for any reporting unit with a zero or negative carrying amount of net assets. If impairment was
indicated by the qualitative assessment, an entity would perform a quantitative impairment test for that
reporting unit to determine the existence and amount of any impairment based on the difference between
the carrying amount of goodwill and the implied fair value of goodwill (Step 2 of the goodwill impairment
test prior to the adoption of ASU 2017-04). In paragraph BC36 of ASU 2017-04, the Board acknowledges
that because the amount of goodwill impairment is calculated under the new guidance based on the excess
of the carrying value of a reporting unit to its fair value, a reporting unit with a zero or negative carrying
value likely will not have an impairment.
Instead of providing additional guidance for calculating impairment in these instances, the Board decided to
require an entity to disclose the amount of goodwill allocated to each reporting unit with a zero or negative
carrying amount. An entity also is required to disclose which reportable segment the reporting unit is
included in. See section 4.2.1 for additional discussion of the disclosures related to reporting units with
zero or negative carrying value.
3A.1.3 Consideration of deferred income taxes in determining the carrying amount of

a reporting unit
350-20-35-7
In determining the carrying amount of a reporting unit, deferred income taxes shall be included in the
carrying amount of the reporting unit, regardless of whether the fair value of the reporting unit will be
determined assuming it would be bought or sold in a taxable or nontaxable transaction.
ASC 350-20-35-7 addresses certain issues related to consideration of deferred taxes when performing
the goodwill impairment tests. Deferred tax assets and liabilities that arise from differences between the
book and tax bases of assets and liabilities assigned to a reporting unit should be included in the carrying
amount of the reporting unit, regardless of whether the fair value of the reporting unit will be determined
assuming it would be bought or sold in a taxable or non-taxable transaction. We also believe that the
effect of any valuation allowances on deferred tax assets should be included in the carrying amount of
the reporting unit.
See section 3A.10 for further discussion on assigning assets or liabilities used in multiple reporting units,
section 3A.3.2 for further discussion of the consideration of deferred taxes in the determination of the
fair value of a reporting unit and section 3A.19 for further guidance on the effect of deferred taxes in the
quantitative impairment test when goodwill is deductible for tax purposes.

3A.2 Goodwill impairment test is incomplete

Prior to the adoption of ASU 2017-04, it was possible that a company would have to issue financial
statements before completing Step 2 of the impairment test and measuring any impairment loss. In that
case, if the loss was probable and could be reasonably estimated, the best estimate of the loss was
recognized in the financial statements (using the guidance in ASC 450). Companies were required to disclose
the fact that the measurement of the impairment loss was an estimate. Any adjustment to that estimated
loss resulting from the completion of the measurement would be recognized in the subsequent period.
Because Step 2 of the impairment test no longer applies, the Board removed this guidance and noted in
paragraph BC34 of ASU 2017-04 that an entity should be able to complete the quantitative impairment
test before the financial statements are issued or are available to be issued.
3A.3 Fair value measurements of a reporting unit (updated July 2021)

Determining the Fair Value of a Reporting Unit
350-20-35-22
The fair value of a reporting unit refers to the price that would be received to sell the unit as a whole in
an orderly transaction between market participants at the measurement date. Quoted market prices in
active markets are the best evidence of fair value and shall be used as the basis for the measurement,
if available. However, the market price of an individual equity security (and thus the market
capitalization of a reporting unit with publicly traded equity securities) may not be representative of
the fair value of the reporting unit as a whole.
350-20-35-23
Substantial value may arise from the ability to take advantage of synergies and other benefits that
flow from control over another entity. Consequently, measuring the fair value of a collection of assets
and liabilities that operate together in a controlled entity is different from measuring the fair value of
that entity’s individual equity securities. An acquiring entity often is willing to pay more for equity
securities that give it a controlling interest than an investor would pay for a number of equity
securities representing less than a controlling interest. That control premium may cause the fair value
of a reporting unit to exceed its market capitalization. The quoted market price of an individual equity
security, therefore, need not be the sole measurement basis of the fair value of a reporting unit.
350-20-35-24
In estimating the fair value of a reporting unit, a valuation technique based on multiples of earnings or
revenue or a similar performance measure may be used if that technique is consistent with the
objective of measuring fair value. Use of multiples of earnings or revenue in determining the fair value
of a reporting unit may be appropriate, for example, when the fair value of an entity that has
comparable operations and economic characteristics is observable and the relevant multiples of the
comparable entity are known. Conversely, use of multiples would not be appropriate in situations in
which the operations or activities of an entity for which the multiples are known are not of a
comparable nature, scope, or size as the reporting unit for which fair value is being estimated.

The fair value of a reporting unit is the amount at which the unit as a whole could be sold in a current
transaction between willing parties (i.e., other than in a forced or liquidation sale). If a public company
has only one reporting unit (or has a publicly traded subsidiary that represents a reporting unit), the
market capitalization of the public company (or its public subsidiary) provides significant evidence about
the fair value of that reporting unit.
When the estimated fair value of a company is greater than its market capitalization, this generally implies
that a control premium26 (which may also be described more broadly as an acquisition premium27) has
been considered in determining the fair value of the company’s reporting unit(s). A control premium may
be included if management believes that substantial value may arise from a market participant’s ability to
take advantage of synergies and other benefits that result from obtaining control over a company (or
reporting unit).
ASC 350 acknowledges that an acquirer often is willing to pay a premium over the quoted market price for
equity securities that give it a controlling interest. Quoted market prices generally represent the price of
stock for a noncontrolling interest in the company under the stewardship of existing management. Therefore,
the quoted market price of individual securities need not be the sole measurement basis of the fair value of
a reporting unit.
ASC 820 provides the framework for measuring fair value. See our FRD, Fair value measurement, for
further guidance.
3A.3.1 Market capitalization as a corroboration of fair value (updated July 2021)

While this is not required under US GAAP, a publicly traded company should reconcile the fair value of its
reporting unit(s) to its stock price and market capitalization to corroborate its fair value estimates used in
both interim and annual impairment testing. The SEC staff, in fact, has requested that registrants provide
evidence of this analysis to justify an implied control premium.
The SEC staff has said a registrant is not expected to calculate its market capitalization using a point-in-
time market price as of the date of its goodwill impairment assessment.28 Instead, the registrant may
consider recent trends in its stock price over a reasonable period leading up to the impairment testing date.
Historically, a “reasonable period” has been interpreted to mean a relatively short period, the length of
which might vary depending on the company’s particular facts and circumstances. However, the SEC
staff also has said that registrants should not ignore a recent decline in market capitalization. Companies
should be prepared to support any range of dates used to determine their market capitalization based on
company-specific factors, including volatility in the company’s stock price.
26
A control premium is typically defined as the “amount or percentage by which the pro rata value of a controlling interest exceeds
the pro rata value of a noncontrolling interest in a business enterprise to reflect the value of control.”
27
An acquisition premium is the amount or percentage by which the pro rata value of a controlling interest under an acquirer (i.e.,
new controlling shareholder(s)) exceeds its value when measured with respect to the current stewardship of the enterprise.
28

While many public companies have multiple reporting units and may not use their market value to
determine the fair value of their reporting units, we would expect companies to document and explain,
in sufficient detail, the reasons for any significant difference between the sum of the fair values of their
individual reporting units and the company’s total market capitalization (i.e., implied control premium).
The extent of documentation and analysis will vary based on the facts and circumstances. Broad
generalizations, including assertions that the current market is not reflective of underlying values or the
use of a “rule of thumb,” to explain differences between the fair value of a reporting unit(s) and market
capitalization would not be appropriate.
The SEC staff29 has said that it does not apply a bright-line test when evaluating control premiums and
that the application of judgment can result in a range of reasonably possible control premiums. Regardless
of whether the analysis is quantitative, qualitative or some combination of those approaches, the SEC
staff has said it would expect the company to have objective evidence to support the reasonableness of
its implied control premium. The SEC staff also expects the amount of documentation supporting the
implied control premium to increase as the control premium increases.
More analyses and documentation on the following topics may be required to support the market
capitalization reconciliation, based on current market conditions:
• Synergies — the price that would be paid to obtain specific synergies that would enhance an
enterprise’s cash flow as a result of obtaining control
• Reduction in required rate of return — the increase in value from reducing the required rate of return
through the market participant acquirer’s ability to optimize the capital structure
• Information transparency — the difference between the information a market participant acquirer of
the business as a whole would have access to and an individual who buys shares in the public market
would have access to
Determining a reasonable implied control premium is often challenging. The Appraisal Foundation’s
Valuations in Financial Reporting Valuation Advisory 3: The Measurement and Application of Market
Participant Acquisition Premiums that was issued in September 2017 provides best practices on the
appropriate methodologies to use. Although the Valuation Advisory is not authoritative guidance, we
understand that the valuation techniques described in the Valuation Advisory are generally recognized by
the valuation community as acceptable methods for determining a control premium.
3A.3.1.1 Effect of qualitative assessment on performing a market capitalization reconciliation

(updated July 2021)
When a company reconciles the fair values of its reporting units to its overall market capitalization, the
company’s ability to support an implied control premium will become more complicated if it uses the
qualitative assessment to test the goodwill of one or more of its reporting units for impairment. The Board
acknowledged in paragraph BC34 of ASU 2011-08 that the use of the qualitative assessment will result in
companies applying judgment about when and how to perform the market capitalization reconciliation.
29
Comments by Robert G. Fox III, Professional Accounting Fellow at the SEC, at the 2008 AICPA National Conference on Current
SEC and PCAOB Developments, 8 December 2008.

While companies that elect to apply the qualitative assessment to one or more reporting units would no
longer have current indicators of fair value to reconcile to market capitalization, the Board concluded
that a company’s inability to perform this reconciliation should not be determinative with respect to its
decision on whether to apply the qualitative assessment. Instead, in certain situations, it may be appropriate
for a company to perform a limited evaluation of the reasonableness of the implied premium based on
other sources of information available to the company about the fair value of its reporting units for which
a qualitative assessment was performed. For example, a company may compare its market capitalization
to the sum of the fair values of the reporting units for which a quantitative impairment test is performed
in the current year, plus fair value information from a prior quantitative test that has been adjusted for
changes in market conditions have affected the underlying cash flows since the last quantitative test was
performed for others (i.e., reporting units that are qualitatively assessed in the current year). While this
evaluation is not as precise as a market capitalization reconciliation in which all reporting units have current
fair value calculations, it may provide information about the reasonableness of the implied premium for
the consolidated company. If, based on this limited analysis, the results of the market capitalization and
related premium do not reconcile, companies should consider performing additional analyses.
If a company records an impairment charge for one or more reporting units as a result of performing the
quantitative impairment test, it may wish to consider whether performing a full market capitalization
reconciliation would provide further evidence with respect to its overall conclusions about fair value and
the related goodwill impairment charge. Depending on the facts and circumstances, a company may
conclude that performing a full market capitalization reconciliation (including calculating the fair value of
reporting units for which it had previously only assessed qualitatively) could be useful to verify that the
impairment charge recorded was accurate. Performing a full market capitalization reconciliation of the
fair value of all reporting units can help companies verify that the value assigned to the impaired
reporting unit is appropriate.
Similarly, companies that experience a sustained decrease in share price (either in absolute terms or
relative to peers) may want to consider performing an overall market capitalization reconciliation to verify
the reasonableness of their assertions of the fair value of each of their reporting units. Depending on the
facts and circumstances, such a decrease could be identified as a significant driver of fair value that could
result in a company concluding that a quantitative market capitalization reconciliation is necessary.
3A.3.2 Effect of deferred taxes on fair value assumptions (updated July 2021)
Deferred Income Tax Considerations
350-20-35-25
Before estimating the fair value of a reporting unit, an entity shall determine whether that estimation
should be based on an assumption that the reporting unit could be bought or sold in a nontaxable
transaction or a taxable transaction. Making that determination is a matter of judgment that depends
on the relevant facts and circumstances and must be evaluated carefully on a case-by-case basis (see
Example 1 [paragraphs 350-20-55-10 through 55-23]).
350-20-35-26
In making that determination, an entity shall consider all of the following:
a. Whether the assumption is consistent with those that marketplace participants would incorporate
into their estimates of fair value
b. The feasibility of the assumed structure

c. Whether the assumed structure results in the highest and best use and would provide maximum
value to the seller for the reporting unit, including consideration of related tax implications.
350-20-35-27
In determining the feasibility of a nontaxable transaction, an entity shall consider, among other
factors, both of the following:
a. Whether the reporting unit could be sold in a nontaxable transaction
b. Whether there are any income tax laws and regulations or other corporate governance requirements
that could limit an entity's ability to treat a sale of the unit as a nontaxable transaction.
The determination of whether to estimate the fair value of a reporting unit by assuming that the unit could
be bought or sold in a non-taxable transaction versus a taxable transaction in performing the quantitative
impairment test is a matter of judgment that depends on the relevant facts and circumstances and must
be evaluated on a case-by-case basis. In making that determination, an entity should consider, among
other things, (1) whether the assumption is consistent with those that marketplace participants would
incorporate into their estimates of fair value, (2) the feasibility of the assumed structure and (3) whether
the assumed structure results in the reporting unit’s highest economic value to the seller.
The following two examples codified in ASC 350-20-55-10 through 55-23 (after the adoption of ASU
2017-04) illustrate how an entity evaluates whether a market participant would sell a reporting unit in a
nontaxable or taxable transaction, and how that evaluation affects the determination of fair value of a
reporting unit when performing the quantitative impairment test.

Intangibles — Goodwill and other — Goodwill
Example 1: Impairment Test When either a Taxable or Nontaxable Transaction is Feasible
Case A — Effect of a Nontaxable Transaction on the Impairment Test of Goodwill
350-20-55-10
This Example illustrates the effect of a nontaxable transaction on the impairment test of goodwill. The
Example may not necessarily be indicative of actual income tax liabilities that would arise in the sale of
a reporting unit or the relationship of those liabilities in a taxable versus nontaxable structure.
350-20-55-11
Entity A is performing a goodwill impairment test relative to Reporting Unit at December 31, 20X2.
Reporting Unit has the following assets and liabilities:
a. Net assets (excluding goodwill and deferred income taxes) of $60 with a tax basis of $35
b. Goodwill of $40
c. Net deferred tax liabilities of $10.
350-20-55-12
Entity A believes that it is feasible to sell Reporting Unit in either a nontaxable or a taxable transaction.
Entity A could sell Reporting Unit for $80 in a nontaxable transaction or $90 in a taxable transaction.
If Reporting Unit were sold in a nontaxable transaction, Entity A would have a current tax payable
resulting from the sale of $10. Assuming a tax rate of 40 percent, if Reporting Unit were sold in a taxable
transaction, Entity A would have a current tax payable resulting from the sale of $22 ([$90 - 35] × 40%).

350-20-55-13
In the quantitative impairment test in paragraphs 350-20-35-4 through 35-8, Entity A concludes that
market participants would act in their economic best interest by selling Reporting Unit in a nontaxable
transaction based on the following evaluation of its expected after-tax proceeds.
Nontaxable Taxable
Gross proceeds (fair value) $ 80 $ 90
Less: taxes arising from transaction (10) (22)
Value to Entity A $ 70 $ 68
350-20-55-14
In the quantitative impairment test, Entity A would determine the carrying amount of Reporting Unit
as follows.
Net assets $60

Goodwill 40
Deferred taxes (10)
Carrying value $90
350-20-55-15
The goodwill allocated to Reporting Unit is determined to be impaired because Reporting Unit’s
carrying value ($90) exceeds its fair value ($80 assuming a nontaxable transaction).
350-20-55-16
Reporting Unit must recognize the full goodwill impairment loss of $10 (determined as the excess of
the carrying amount of Reporting Unit of $90 compared with its fair value of $80) because the $10
impairment loss does not exceed the $40 carrying amount of the goodwill allocated to Reporting Unit.
Example 2: Impairment Test When either a Taxable or Nontaxable Transaction is Feasible

Case B — Effect of a Taxable Transaction on the Impairment Test of Goodwill
350-20-55-17
This Example illustrates the effect of a taxable transaction on the impairment test of goodwill. The
Example may not necessarily be indicative of actual income tax liabilities that would arise in the sale of
a reporting unit or the relationship of those liabilities in a taxable versus nontaxable structure.
350-20-55-18
Entity A is performing a goodwill impairment test relative to Reporting Unit at December 31, 20X2.
Reporting Unit has the following assets and liabilities:
a. Net assets (excluding goodwill and deferred income taxes) of $60 with a tax basis of $35
b. Goodwill of $40
c. Net deferred tax liabilities of $10.
350-20-55-19
Entity A believes that it is feasible to sell Reporting Unit in either a nontaxable or a taxable transaction.
Entity A could sell Reporting Unit for $65 in a nontaxable transaction or $80 in a taxable transaction.
If Reporting Unit were sold in a nontaxable transaction, Entity A would have a current tax payable
resulting from the sale of $4. Assuming a tax rate of 40 percent, if Reporting Unit were sold in a taxable
transaction, Entity A would have a current tax payable resulting from the sale of $18 ([$80 - 35] × 40%).

350-20-55-20
In the quantitative impairment test in paragraphs 350-20-35-4 through 35-8, Entity A concludes that
market participants would act in their economic best interest by selling Reporting Unit in a taxable
transaction. This conclusion was based on the following.
Nontaxable Taxable
Gross proceeds (fair value) $ 65 $ 80
Less: taxes arising from transaction (4) (18)
Value to Entity A $ 61 $ 62
350-20-55-21
Deferred taxes related to the net assets of Reporting Unit should be included in the carrying value of
Reporting Unit. Accordingly, in the quantitative impairment test Entity A would determine the carrying
amount of Reporting Unit as follows.
Net assets $60

Goodwill 40
Deferred taxes (10)
Carrying value $90
350-20-55-22
The goodwill allocated to Reporting Unit is determined to be impaired because Reporting Unit’s
carrying amount ($90) exceeds its fair value ($80).
350-20-55-23
Reporting Unit must recognize the full goodwill impairment loss of $10 (determined as the excess of
the carrying amount of Reporting Unit of $90 compared with its fair value of $80) because the $10
impairment loss does not exceed the $40 carrying amount of the goodwill allocated to Reporting Unit.
When performing the quantitative impairment test for a reporting unit, an entity that assumes a market
participant would sell the reporting unit in a taxable transaction generally will estimate a higher fair value
(and consequently, recognize a lower impairment loss) than it would have if the reporting unit was
assumed to be sold in a nontaxable transaction. This is because market participants generally expect
additional consideration in taxable transactions. For example, as indicated in Case B above, because the
entity determines that it would be in a market participant’s best economic interest to sell the reporting
unit in a taxable transaction, the entity would assume an estimated fair value of $80 when performing its
quantitative test. Consequently, the entity recognizes an impairment loss of $10 (the excess of the
reporting unit’s carrying value of $90 over its fair value of $80), which is $15 lower than the impairment
loss the entity would have recognized if it had assumed that the reporting unit would be sold in a
nontaxable transaction (i.e., an impairment loss of $25 representing the excess of the reporting unit’s
$90 carrying value over a fair value of $65).

3A.4 Goodwill impairment test of a reporting unit that includes all or part of a foreign
entity
Foreign Currency Matters — Translation of Financial Statements
Translation After a Business Combination
830-30-45-11
After a business combination, the amount assigned at the acquisition date to the assets acquired and
the liabilities assumed (including goodwill or the gain recognized for a bargain purchase in accordance
with Subtopic 805-30) shall be translated in conformity with the requirements of this Subtopic.
830-30-45-14
In both cases, paragraph 830-30-40-1 is clear that no basis exists to include the cumulative translation
adjustment in an impairment assessment if that assessment does not contemplate a planned sale or
liquidation that will cause reclassification of some amount of the cumulative translation adjustment.
(If the reclassification will be a partial amount of the cumulative translation adjustment, this guidance
contemplates only the cumulative translation adjustment amount subject to reclassification pursuant
to paragraphs 830-30-40-2 through 40-4.)
830-30-45-15
An entity shall include the portion of the cumulative translation adjustment that represents a gain or
loss from an effective hedge of the net investment in a foreign operation as part of the carrying
amount of the investment when evaluating that investment for impairment.
When a reporting unit contains one or more foreign entities or is a foreign entity (as defined by ASC 830),
entities will need to carefully consider whether a portion of goodwill resulting from an acquired business
should be attributed to a foreign entity. A foreign entity may include a subsidiary, division, branch or joint
venture that constitutes a reporting unit by itself or that is contained in a broader reporting unit. That is, a
foreign entity as defined by ASC 830 may differ from a legal entity. See section 1.2.2 of our FRD, Foreign
currency matters, for additional discussion on the definition of a foreign entity under ASC 830.
Goodwill attributed to a foreign entity (along with assets acquired and liabilities assumed) should be
initially measured in the functional currency of the foreign entity and subsequently translated to the
reporting currency of the parent (if the functional currency of the foreign entity is different from the
reporting currency) at the current exchange rate. Any resulting translation adjustments would be
included as a CTA. Changes in the goodwill balance caused by foreign currency translation should be
reflected in the reporting units where goodwill is assigned.
This initial and subsequent measurement would apply regardless of whether goodwill and related
acquisition method adjustments were pushed down to the books and records of the foreign entity.
As discussed in section 3A.1, goodwill is tested for impairment at the reporting unit level. To test goodwill
for impairment at the reporting unit, goodwill (along with assets acquired and liabilities assumed) in
connection with a business combination is assigned to a reporting unit as of the date of acquisition.
See sections 3A.9 through 3A.11 for general guidance related to the assignment of assets acquired and
liabilities assumed and goodwill to reporting units. See section 4.2.1 of our FRD, Foreign currency
matters, for additional discussion on the translation of amounts of assets acquired and liabilities
assumed and goodwill assigned to reporting units after a business combination under ASC 830.

Question 3A.2 Should goodwill related to a multi-currency reporting unit be tested for impairment at a level lower
than the reporting unit?
No. ASC 350-20-35-1 requires entities to test goodwill for impairment at the reporting unit level.
Therefore, goodwill cannot be tested for impairment at any level within the entity other than the
reporting unit level.
3A.4.1 Consideration of CTA amounts in the carrying amount of a reporting unit

350-20-35-39A
Foreign currency translation adjustments should not be allocated to a reporting unit from an entity’s
accumulated other comprehensive income. The reporting unit’s carrying amount should include only
the currently translated balances of the assets and liabilities assigned to the reporting unit.
With ASU 2017-04, the Board amended ASC 350 (ASC 350-20-35-39A) to provide that foreign currency
translation adjustments should not be allocated to a reporting unit from an entity’s other comprehensive income.
Therefore, the carrying amount of the reporting unit should include only its currently translated balances.
Illustration 3A-11: Treatment of CTA in goodwill impairment test
Company A is performing the goodwill impairment test for a reporting unit that also is a foreign entity
that has the following balances (after currency translation):
Assets (including goodwill) $ 50

Liabilities (20)
Net assets $ 30
Paid-in capital and retained earnings $ (35)

Cumulative translation adjustment 5
Total equity $ (30)
Analysis
Pursuant to ASC 350-20-35-39A, the CTA balance should not be included in the carrying amount of
the reporting unit. Therefore, the carrying amount of the reporting unit’s net assets should be based
on current exchange rates, or $30.

3A.5 Frequency of goodwill impairment tests

350-20-35-28
Goodwill of a reporting unit shall be tested for impairment on an annual basis and between annual
tests in certain circumstances (see paragraph 350-20-35-30). The annual goodwill impairment test
may be performed any time during the fiscal year provided the test is performed at the same time
every year. Different reporting units may be tested for impairment at different times.
Goodwill of each reporting unit must be tested for impairment at least annually. The timing of the annual
impairment test does not have to be at the end of each fiscal year. The goodwill impairment test can be
performed at any time during the year as long as that measurement date is used consistently going
forward. A company’s decision to apply the qualitative assessment does not change the company’s
annual testing date (see section 3A.1.1 for guidance on the qualitative assessment). Further, a company
can elect to assign different measurement dates to different reporting units based on factors such as the
seasonality of the business, the dates that it will be easiest to determine fair value (if necessary), and
spreading out the workload if the determinations are to be performed internally. For example, a company
can elect to consistently perform its annual impairment tests for Reporting Unit A in December,
Reporting Unit B in September and Reporting Unit C in June.
Public companies should carefully select their annual goodwill measurement dates because quarterly
reporting requirements limit the amount of time to complete the fair value determinations required. For
example, if a calendar year-end public company selects 30 September or another quarter end as its
annual measurement date and subsequently experiences goodwill impairment, there may be insufficient
time to complete all of the required valuation analysis prior to the date the third quarter Form 10-Q is due.
We observe that companies often choose the beginning of the fourth fiscal quarter as the annual
impairment test date. Following this approach, companies will have the appropriate carrying amounts
available as of the last day of the prior fiscal quarter and will have the full quarter to assess whether they
have a potential impairment (qualitative assessment, if used) and complete the quantitative impairment
test, if required. If a company identifies an impairment charge when performing its annual assessment as
of the beginning of its fiscal fourth quarter, it should consider whether the impairment is appropriately
recognized in the fourth quarter or whether it should have been recognized in an earlier interim period.
Further, this approach would alleviate concerns about whether indicators exist in later quarters of the
fiscal year, which could occur if the impairment test was performed earlier in the year (i.e., the risk that
an indicator of impairment occurred and was not detected between the completion of the annual test and
the preparation of the year-end financial statements is reduced).
3A.5.1 Changing the goodwill assessment date

Some companies might elect to change the date of the annual goodwill assessment date. In those
situations, an entity should look to current SEC guidance. Section II.G.2 of the SEC staff’s Current
Accounting and Disclosure Issues in the Division of Corporation Finance30 states the following about a
registrant’s ability to change the annual assessment date:
SFAS 142 [ASC 350-20] requires that goodwill be tested, at the reporting unit level, for impairment on an
annual basis. An impairment test also could be triggered between annual tests if an event occurs or
circumstances change. A reporting unit is required to perform the annual impairment test at the same
30
Updated 30 November 2006.

time every year, however, nothing precludes a registrant from changing the date of the annual
impairment test. If a registrant chooses to change the date of the annual impairment test, it should
ensure that no more than 12 months elapse between the tests. The change in testing dates should not be
made with the intent of accelerating or delaying an impairment charge. The staff will likely raise concerns
if a registrant is found to have changed the date of its annual goodwill impairment test frequently.
Any change to the date of the annual goodwill impairment test would constitute a change in the method
of applying an accounting principle, as discussed in paragraph 4 of SFAS 154 [ASC 250-10-45-1], and
therefore would require justification of the change on the basis of preferability. The registrant is
required by Rule 10-01(b)(6) of Regulation S-X to disclose the date of and reason for the change.
When an SEC registrant makes a voluntary change in accounting principle, it generally is required to include
a preferability letter issued by its independent registered public accounting firm as Exhibit 18 to its first
periodic report filed subsequent to the accounting change. In a December 2014 speech, an SEC staff
member31 stated the following: “… the staff has observed that some registrants may view a change in
goodwill impairment testing date to not represent a material change to a method of applying an accounting
principle, even if goodwill is material to the financial statements, because the change in impairment testing
date is not viewed to have a material effect on the financial statements in light of the registrant’s internal
controls and requirements under Topic 350 to assess goodwill impairment upon certain triggering events.”
Refer to section 3 of our FRD, Accounting changes and error corrections, for further discussion and
considerations on whether a preferability letter is required for a change in goodwill impairment testing date.
3A.6 Interim impairment test

350-20-35-30
Goodwill of a reporting unit shall be tested for impairment between annual tests if an event occurs or
circumstances change that would more likely than not reduce the fair value of a reporting unit below
its carrying amount. Paragraph 350-20-35-3C(a) through (g) includes examples of such events and
circumstances. Paragraphs 350-20-35-3F through 35-3G describe the process for making these evaluations.
In addition to the annual goodwill impairment test, an interim test for goodwill impairment should be
completed when an event occurs or circumstances change between annual tests that would more likely
than not reduce the fair value of the reporting unit below its carrying amount. ASC 350-20-35-3C
provides the following list of events and circumstances to consider in determining whether an interim
goodwill impairment test is necessary:
• Industry and market considerations (e.g., deterioration in the environment in which the company operates)
31
Remarks by Carlton E. Tartar, Associate Chief Accountant at the SEC, at the 2014 AICPA National Conference on Current SEC

• A sustained decrease in share price (in either absolute terms or relative to peers), if applicable
These events and circumstances are examples, not an all-inclusive list of goodwill impairment indicators.
Other events and changes in circumstances may also require goodwill to be tested for impairment
between annual measurement dates. Companies must test goodwill of a reporting unit for impairment
after a portion of goodwill has been assigned to a business that is disposed of. If an acquisition generated
synergistic goodwill that was assigned to a reporting unit that was not assigned other acquired assets, we
believe that the subsequent disposal of that acquired business may be an impairment indicator of the
goodwill at the reporting unit to which the synergistic goodwill was assigned.
Certain market conditions may lead to a conclusion that one or more of those events have occurred. The
SEC staff32 said it will consider the following indicators when performing reviews:
• Recent operating losses at the reporting unit level
• Downward revisions to forecasts
• A decline in enterprise market capitalization below book value
• Restructuring actions or plans
• Industry trends
3A.6.1 Market capitalization as an impairment indicator

A company’s market capitalization is considered in two ways under ASC 350-20. The first is as an indicator
of possible impairment that would require an interim assessment of goodwill for impairment. The second, as
discussed in section 3A.3.1, is as a corroborative source of market information that is utilized to verify
that the values used in the goodwill impairment analysis are reasonable. The general principle used in
determining whether an interim impairment test for goodwill is required is whether it is more likely than not
that the fair value of a reporting unit is less than its carrying amount. Accordingly, a decline in a company’s
stock price (both in absolute terms and relative to peers) and market capitalization should be considered in
determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying
amount. Situations may arise where companies may need to consider performing an interim goodwill
impairment test even though they may have recently performed their annual assessment.
A significant decline in a company’s stock price may suggest that the fair value of one or more reporting
units has fallen below their carrying amounts, indicating that an interim goodwill impairment test is
required. Similarly, declines in the stock prices of other companies in a reporting unit’s industry may
suggest that an interim test for goodwill impairment is required. To assess whether the decline in market
capitalization is an indicator requiring an interim goodwill impairment test, companies should consider
the underlying reasons for the decline in the value of the securities (for example, adverse change in the
business climate, an adverse action taken by a regulator), as well as the significance of the decline and
the length of time the securities have been trading at a depressed value. It should not be assumed that a
decline in the market price is temporary and that the stock price will recover.
32
Remarks by Steven C. Jacobs, Associate Chief Accountant at the SEC, at the 2008 AICPA National Conference on Current SEC

3A.7 Goodwill impairment test in conjunction with another asset (or asset group)
350-20-35-31
If goodwill and another asset (or asset group) of a reporting unit are tested for impairment at the same time,
the other asset (or asset group) shall be tested for impairment before goodwill. For example, if a significant
asset group is to be tested for impairment under the Impairment or Disposal of Long-Lived Assets
Subsections of Subtopic 360-10 (thus potentially requiring a goodwill impairment test), the impairment test
for the significant asset group would be performed before the goodwill impairment test. If the asset group
was impaired, the impairment loss would be recognized prior to goodwill being tested for impairment.
350-20-35-32
This requirement applies to all assets that are tested for impairment, not just those included in the
scope of the Impairment or Disposal of Long-Lived Assets Subsections of Subtopic 360-10.
reporting unit as the measure of potential impairment, ASC 350-20 requires that if an impairment test of
goodwill and any other asset that is held for use is required at the same time, impairment tests of all
other assets (e.g., inventory, long-lived assets) should be completed and reflected in the carrying amount
of the reporting unit prior to the completion of the goodwill impairment test. For example, if an impairment
test under ASC 360-10 is being completed for a significant group of assets of a reporting unit that also
requires a goodwill impairment test, the impairment test for the significant asset group should be completed
pursuant to ASC 360-10 and the carrying amount of the asset group adjusted before completing the
goodwill impairment test. The following example highlights the order of impairment testing when other
assets are tested in conjunction with goodwill.
Illustration 3A-12: Order of impairment testing
Assume that ABC Inc. has a reporting unit that includes the following:
Receivables Inventory
Goodwill Property, plant and equipment
ABC has determined that the property, plant and equipment and finite-lived intangibles constitute an
asset group. ABC also has determined that an interim impairment test is warranted for all assets of the
reporting unit, including its goodwill, its asset group and the other individual assets of the reporting unit.
Analysis
ASC 350-20 and ASC 360-10 require the asset group and goodwill to be tested for impairment (after
adjustments are made to other assets and liabilities in the group according to other applicable US
GAAP) in the following order:
First Second Last
Receivables Property, plant and equipment Goodwill
Inventory

In paragraph BC18 of ASU 2017-04, the Board noted that under the new guidance, entities in certain
industries may be more susceptible to an impairment charge stemming from fair value changes in
something other than goodwill because they may have significant assets or liabilities with fair values that
could differ significantly from their carrying amounts. As described in paragraph BC21 of ASU 2017-04,
the Board discussed concerns that financial statement users could be confused if a goodwill impairment
charge results from unrecognized impairment in the value of other assets and liabilities but concluded
that the simpler calculation under the one-step test may be better understood. The Board also noted in
paragraph BC22 of ASU 2017-04 that financial statement users will have increased insight into
situations in which the carrying amount of the net assets of a reporting unit is higher than its fair value.
3A.7.1 Acquired entity represents only a part of the reporting unit

When an acquired entity represents only part of the reporting unit (as is typically the case), the fair value
of the reporting unit could include the appreciation of goodwill or other assets from earlier acquisitions,
unrecognized goodwill or other assets from prior pooling-of-interests and internally generated goodwill
or other assets. In these circumstances, unrealized losses on an acquisition may be offset against
unrecognized appreciation on other assets within the reporting unit.
For example, a very successful acquisition made years ago that has appreciated would offset impairment
of goodwill from a recent acquisition in the same reporting unit that has performed very poorly. The FASB
acknowledges the existence of this “cushion” that is built into the impairment model. However, the FASB
concluded that keeping track of acquisition-specific goodwill for impairment testing purposes would be
almost impossible once an acquired company has been integrated into the acquiring company. The FASB
also acknowledges that acquired goodwill or other assets may be offset or replaced by unrecorded
internally generated goodwill and concluded that this was appropriate provided that the company is able
to maintain the overall value of the reporting unit (e.g., by expending resources on advertising and
customer service). However, offsetting such amounts between reporting units is not permitted.
3A.8 Identification of reporting units

350-20-35-33
The provisions of Topic 280 shall be used to determine the reporting units of an entity.
350-20-35-34
A component of an operating segment is a reporting unit if the component constitutes a business or a
nonprofit activity for which discrete financial information is available and segment management, as
that term is defined in paragraph 280-10-50-7, regularly reviews the operating results of that
component. Subtopic 805-10 includes guidance on determining whether an asset group constitutes a
business. Throughout the remainder of this Section, the term business also includes a nonprofit activity.
350-20-35-35
However, two or more components of an operating segment shall be aggregated and deemed a single
reporting unit if the components have similar economic characteristics. Paragraph 280-10-50-11 shall be
considered in determining if the components of an operating segment have similar economic characteristics.
350-20-35-36
An operating segment shall be deemed to be a reporting unit if all of its components are similar, if
none of its components is a reporting unit, or if it comprises only a single component.

350-20-35-37
Reporting units will vary depending on the level at which performance of the segment is reviewed, how
many businesses the operating segment includes, and the similarity of those businesses. In other
words, a reporting unit could be the same as an operating segment, which could be the same as a
reportable segment, which could be the same as the entity as a whole (entity level).
350-20-35-38
An entity that is not required to report segment information in accordance with Topic 280 is nonetheless
required to test goodwill for impairment at the reporting unit level. That entity shall use the guidance in
paragraphs 280-10-50-1 through 50-9 to determine its operating segments for purposes of determining its
reporting units.
A reporting unit is an operating segment, as that term is used in ASC 280, or one level below the
operating segment (referred to as a component), depending on whether certain criteria are met. These
criteria are discussed in detail below. An operating segment is the highest level within the company that
can be a reporting unit (i.e., the operating segment level is the ceiling), and the component level is the
lowest level within the company that can be a reporting unit (i.e., the component level is the floor). In
addition, there may be limited cases in which a company has only one operating segment that would be
its sole reporting unit. In these cases, goodwill will be tested for impairment at the entity level.
The guidance in ASC 280 states that an operating segment is not necessarily the same as a reportable
segment (for which companies must disclose certain information in the segment footnote) because
ASC 280 permits companies to aggregate operating segments into reportable segments if certain
conditions are met. ASC 280 allows for the aggregation of multiple operating segments into a single
reportable segment if either: (1) the operating segments have similar economic and other characteristics,
as defined in ASC 280-10-50-11 or (2) the operating segments do not meet the quantitative thresholds to
be reported separately but are economically similar and similar in a majority of the other characteristics, as
described in ASC 280-10-50-13. For example, just because a company reports segment information on
four reportable segments in the notes to its financial statements does not necessarily mean that the
company has four operating segments; the company may have properly aggregated two or more operating
segments into a single reportable segment. Therefore, to identify their reporting units for purposes of
goodwill impairment testing, companies must first identify their operating segments pursuant to ASC 280.
Under the goodwill amortization accounting alternative (as discussed in section 1.1.2), a private
company or an NFP may elect to test goodwill for impairment at either the entity or reporting unit level
(refer to Appendix A for further guidance on the goodwill amortization accounting alternative). If a
private company or an NFP does not elect to apply the goodwill amortization accounting alternative, it is
required to assign and then to test goodwill for impairment at the reporting unit level even if the private
company or NFP does not report segment information under ASC 280. Our FRD, Segment reporting,
provides additional guidance on identifying operating segments.
The following guidance is applied to determine whether the reporting unit should be identified at the
operating segment or the component level:
• A component of an operating segment is a reporting unit if the component constitutes a business (as
described in our FRD, Business combinations, and discussed further below) for which discrete
financial information is available and segment management regularly reviews the operating results of
that component. Segment management consists of one or more segment managers.33
33
For purposes of ASC 350, the term “segment manager” has the same meaning as in ASC 280. Generally, an operating segment has a
segment manager who is directly accountable to and maintains regular contact with the chief operating decision maker (CODM) to
discuss operating activities, financial results, forecasts, or plans for the segment. The term segment manager identifies a function,
not necessarily a manager with a specific title. The CODM may also be the segment manager for certain operating segments. A single
manager may be segment manager for more than one operating segment. If the characteristics in ASC 280-10-50-1 and 50-3 apply
to more than one set of components of an organization but there is only one set for which segment managers are held responsible,
that set of components constitutes the operating segments (ASC 280-10-50-7 and 50-8).

• However, two or more components within the same operating segment should be aggregated and
deemed a single reporting unit if the components have similar economic characteristics.34
• An operating segment should be deemed to be a reporting unit if all of its components have similar
economic characteristics, if none of its components is a reporting unit or if it is comprised of only a
single component.
Companies should consider the implementation guidance discussed in ASC 350-20-55-1 through 55-9
when making this determination. See section 3A.8.4 for further discussion.
3A.8.1 The component constitutes a business or a nonprofit activity

350-20-55-3
The determination of whether a component constitutes a business or a nonprofit activity requires
judgment based on specific facts and circumstances. The guidance in Section 805-10-55 should be
considered in determining whether a group of assets constitutes a business or a nonprofit activity.
The fact that operating information (revenues and expenses) exists for a component of an operating
segment does not necessarily mean that the component constitutes a business or a nonprofit activity.
For example, a component for which operating information is prepared might be a product line or a brand
that is part of a business or nonprofit activity rather than a business or nonprofit activity in and of itself.
Section 2.1.3 of our FRD, Business combinations, provides guidance on the definition of what constitutes a
business under ASC 805.
3A.8.2 Discrete financial information

350-20-55-4
The term discrete financial information should be applied in the same manner that it is applied in
determining operating segments in accordance with paragraph 280-10-50-1. That guidance indicates
that it is not necessary that assets be allocated for a component to be considered an operating
segment (that is, no balance sheet is required). Thus, discrete financial information can constitute as
little as operating information. Therefore, in order to test goodwill for impairment in accordance with
this Subtopic, an entity may be required to assign assets and liabilities to reporting units (consistent
with the guidance in paragraphs 350-20-35-39 through 35-40).
In applying the guidance in ASC 350-20-55-4, a company that produces only income statement data for
a component may be required to assign assets and liabilities to that component if that component meets
all of the other criteria of a reporting unit. However, it is not intended that a company assign assets and
liabilities resulting in a complete US GAAP balance sheet. Rather, the assigned assets and liabilities
should be limited to those that are used in or relate to the operations of the component and that would
34
ASC 350-20 states that ASC 280-10-50-11 should be considered in determining if the components of an operating segment have
similar economic characteristics. Refer to section 3A.8.4 for further discussion of similar economic characteristics.

be considered in determining the fair value of the reporting unit. If the assignment of assets and liabilities
to the component requires an excessive amount of arbitrary allocations, this might indicate that the
component is either not a business as defined by ASC 805 or it may be economically similar to another
component and should be aggregated with that other component. See section 2.1.3 in our FRD, Segment
reporting, for further discussion on discrete financial information.
3A.8.3 Reviewed by segment management

350-20-55-5
Segment management, as defined in paragraphs 280-10-50-7 through 50-8, is either a level below or
the same level as the chief operating decision maker. According to Topic 280, a segment manager is
directly accountable to and maintains regular contact with the chief operating decision maker to
discuss operating activities, financial results, forecasts, or plans for the segment. The approach used
in this Subtopic to determine reporting units is similar to the one used to determine operating segments;
however, this Subtopic focuses on how operating segments are managed rather than how the entity as
a whole is managed; that is, reporting units should reflect the way an entity manages its operations.
3A.8.4 Similar economic characteristics

350-20-55-6
Evaluating whether two components have similar economic characteristics is a matter of judgment that
depends on specific facts and circumstances. That assessment should be more qualitative than quantitative.
350-20-55-7
In determining whether the components of an operating segment have similar economic characteristics,
all of the factors in paragraph 280-10-50-11 should be considered. However, every factor need not be
met in order for two components to be considered economically similar. In addition, the determination
of whether two components are economically similar need not be limited to consideration of the
factors described in that paragraph. In determining whether components should be combined into one
reporting unit based on their economic similarities, factors that should be considered in addition to
those in that paragraph include but are not limited to, the following:
a. The manner in which an entity operates its business or nonprofit activity and the nature of those
operations
b. Whether goodwill is recoverable from the separate operations of each component business (or
nonprofit activity) or from two or more component businesses (or nonprofit activities) working in
concert (which might be the case if the components are economically interdependent)
c. The extent to which the component businesses (or nonprofit activities) share assets and other
resources, as might be evidenced by extensive transfer pricing mechanisms
d. Whether the components support and benefit from common research and development projects.

The fact that a component extensively shares assets and other resources with other components of
the operating segment may be an indication that the component either is not a business or nonprofit
activity or it may be economically similar to those other components.
350-20-55-8
Components that share similar economic characteristics but relate to different operating segments
may not be combined into a single reporting unit. For example, an entity might have organized its
operating segments on a geographic basis. If its three operating segments (Americas, Europe, and
Asia) each have two components (A and B) that are dissimilar to each other but similar to the
corresponding components in the other operating segments, the entity would not be permitted to
combine component A from each of the operating segments to make reporting unit A.
350-20-55-9
If two operating segments have been aggregated into a reportable segment by applying the aggregation
criteria in paragraph 280-10-50-11, it would be possible for one or more of those components to be
economically dissimilar from the other components and thus be a reporting unit for purposes of testing
goodwill for impairment. That situation might occur if an entity's operating segments are based on
geographic areas. The following points need to be considered in addressing this circumstance:
a. The determination of reporting units under this Subtopic begins with the definition of an
operating segment in paragraph 280-10-50-1 and considers disaggregating that operating
segment into economically dissimilar components for the purpose of testing goodwill for
impairment. The determination of reportable segments under Topic 280 also begins with an
operating segment, but considers whether certain economically similar operating segments
should be aggregated into a single operating segment or into a reportable segment.
b. The level at which operating performance is reviewed differs between this Subtopic and Topic 280.
It is the chief operating decision maker who reviews operating segments and the segment manager
operating segment would not be considered an operating segment for purposes of that Topic unless
the chief operating decision maker regularly reviews its operating performance; however, that same
component might be a reporting unit under this Subtopic if a segment manager regularly reviews its
operating performance (and if other reporting unit criteria are met).
When determining whether the components of an operating segment have similar economic characteristics,
an entity should consider all of the factors in ASC 280-10-50-11. Operating segments often exhibit
similar long-term financial performance if they have similar economic characteristics. For example,
similar long-term average gross margins for two operating segments would be expected if their economic
characteristics were similar. Two or more operating segments may be aggregated into a single operating
segment if aggregation is consistent with the objective and basic principles in ASC 280, if the segments
have similar economic characteristics and if the segments are similar in each of the following areas:
• The nature of the products and services
• The nature of the production processes
• The type or class of customer for their products and services
• The methods used to distribute their products or provide their services
• The nature of the regulatory environment, if applicable (e.g., banking, insurance, public utilities)

As discussed in EITF D-101,35 the FASB did not intend that every factor in ASC 280-10-50-11 be met in
order for two components to be considered economically similar. In addition, the Board did not intend that
the determination of whether two components are economically similar be limited to consideration of the
factors described in ASC 280-10-50-11.
We believe the guidance in ASC 350-20-55-7, which clarifies that the FASB did not intend that all of the
factors in ASC 280-10-50-11 must be met in order for two components to be considered economically
similar, gives companies greater latitude in evaluating whether components should be aggregated than
one may initially perceive based solely on the reference to the guidance in ASC 280-10-50-11. For
example, the existence of a wide range of gross profit margins between components does not necessarily
mean that those components cannot be aggregated. In addition, we believe that this interpretive
guidance may give companies with vertically integrated operations within a single operating segment
greater latitude in concluding that the components may be economically similar.
This guidance underscores the fact that components of two separate operating segments may not be
aggregated into a single reporting unit. This may be troublesome for companies that report segment
information based on geographic areas.
3A.8.5 Additional observations

Some constituents have noted that two operating segments may have been aggregated into a reportable
segment by applying the aggregation criteria in ASC 280-10-50-11, and have inquired about whether
one or more of the components of those operating segments can be reporting units. The FASB staff
believes it would be possible for one or more of those components to be economically dissimilar from the
other components and thus be a reporting unit for purposes of testing goodwill for impairment. In
particular, as discussed in EITF D-101, the FASB staff believes that that situation might occur when an
entity’s operating segments are based on geographic areas. The following points need to be considered
in addressing this question:
• The determination of reporting units under ASC 350-20 begins with the definition of an operating
segment in ASC 280-10-50-1 and considers disaggregating that operating segment into
economically dissimilar components for the purpose of testing goodwill for impairment. The
determination of reportable segments under ASC 280 also begins with an operating segment, but
considers whether certain economically similar operating segments should be aggregated into a
single operating segment or into a reportable segment.
• The level at which operating performance is reviewed differs between ASC 280 and ASC 350 — it is
the CODM who reviews operating segments and the segment manager who reviews reporting units
(components of operating segments). Therefore, a component of an operating segment would not be
considered an operating segment for ASC 280 purposes unless the CODM regularly reviews its operating
performance; however, that same component might be a reporting unit under ASC 350-20 if a segment
manager regularly reviews its operating performance (and if other reporting unit criteria are met).
Implicit in the FASB’s guidance is the fact that identifying the reporting unit begins with the definition of an
operating segment. ASC 280 allows for the aggregation of two operating segments into a single reportable
segment if the aggregation criteria in ASC 280-10-50-11 are met. If a company has a reportable segment
under ASC 280 that consists of aggregated operating segments, it must first look through the aggregated
reportable segment to its operating segments to begin the assessment of its reporting units.
35
This staff announcement summarized the FASB staff’s understanding of the Board’s intent with respect to the determination of
whether a component of an operating segment is a reporting unit. This guidance is now codified in ASC 350-20 and is discussed
in sections 3A.8.1 through 3A.8.5.

In summary, reporting units will vary depending on the level at which performance of the operating
segment is reviewed, how many businesses are included in the operating segment, and the economic
similarity of those businesses. The FASB believes that defining the reporting unit one level below the
operating segment level (i.e., the component level) is appropriate and aligns with how operating results
are regularly reviewed to make decisions about resource allocation and to assess segment performance.
However, the FASB also noted that even though segment management might review the operating
results of a number of business units, components with similar economic characteristics should be
aggregated into one reporting unit because the benefit of goodwill is shared by components of an
operating unit that have similar economic characteristics. Because of this sharing of benefits, allocating
goodwill among those components would be arbitrary and unnecessary for the purpose of testing
goodwill for impairment.
We believe that identifying the reporting units is one of the more difficult and judgmental processes in
applying ASC 350-20. Therefore, we believe that companies should document their selection of reporting
units and the basis for that selection (and retain that documentation).
The following example illustrates how the concepts described above would be applied.
Illustration 3A-13: Identification of reporting units

Background
Entity
RS1 RS2
OS1 OS2 OS3
C1 C2 C3 C4 C5 C6 C7
RS = The reportable segments included in the ASC 280 segment disclosures. This company has two reportable segments (RS1 and RS2).
OS = The operating segments under ASC 280. This company has three operating segments (OS1, OS2 and OS3). In applying ASC 280,
the company determined that OS1 and OS2 have similar economic characteristics and meet the criteria for aggregation in
ASC 280-10-50-11. Therefore, OS1 and OS2 qualified for aggregation into RS1. OS3 meets the quantitative thresholds in
ASC 280 to be reported separately and has not been aggregated with any other operating segment and is therefore the same as
reportable segment RS2.
C = The components of the company. This company has seven components (C1, C2, C3, C4, C5, C6 and C7) that are one level
below the operating segments.
Identifying the reporting units

• Determining the reporting units of the company begins at the operating segment level (OS1, OS2
and OS3). ASC 350-20 does not allow the aggregation of OS1 and OS2 as permitted under
ASC 280 for the purpose of determining the reportable segment.

• The company will apply the reporting unit criteria in ASC 350-20 to the components to determine
if the reporting unit should be identified one level below the operating segment. Each component
will be evaluated to determine if: (a) it is a business (as defined in ASC 805), (b) discrete financial
information is available and (c) the operating results are regularly reviewed by the segment
manager(s). If the components of a specific operating segment meet these criteria, they might be
deemed to be separate reporting units. However, if they have similar economic characteristics
(which is a matter of judgment based on individual facts and circumstances), these components
must be aggregated into one reporting unit.
For example, assume C5, C6 and C7 each are businesses for which discrete financial information is
available, and segment (OS3) management regularly reviews their individual operating results. If C5,
C6 and C7 all have dissimilar economic characteristics, then there would be three reporting units
within OS3 as each of the components would be a reporting unit. If C5 and C6 have similar economic
characteristics, but C7 does not have similar economic characteristics to C5 and C6, then there would
be two reporting units within OS3: (1) C5 and C6 combined, and (2) C7. If C5, C6 and C7 all have
similar economic characteristics, the reporting unit would be the operating segment (OS3).
• Components of different operating segments may not be aggregated even if they have similar
economic characteristics. As such, if C2 and C3 had similar economic characteristics, they could
not be aggregated because C2 and C3 are components of different operating segments.
Conclusions
• The company will have at least three reporting units based on the fact that three operating
segments have been identified.
• The company can have as many as seven reporting units (the number of components). The
number will depend on how many components meet the reporting unit criteria and, if so, the
number of potential components that must be aggregated based on similarity of economic
characteristics, which is based on judgment.
• The company will not have more than seven reporting units. Even if levels exist below the
components that meet the reporting unit criteria, ASC 350-20 prohibits identifying the reporting
unit more than one level below the operating segment.
In general, we do not believe that identifying multiple reporting units below the operating segment level
would otherwise call into question a company’s disclosure of reportable segments under ASC 280, provided
that the company appropriately applied the provisions of that guidance. A key distinction between an
operating segment and a component is the level of review of the operating results of each. The CODM
reviews the results of an operating segment, while a segment manager reviews the results of a component.
A segment manager is normally directly accountable to and maintains regular contact with the CODM
(ASC 280-10-50-7 and 50-8). However, the SEC staff often questions whether registrants properly identify
operating segments under ASC 280.
The SEC continues to emphasize segment disclosures and the application of ASC 280 during its review process.
The SEC staff comments generally focus on: (1) the identification of operating segments, (2) the aggregation
or combination of operating segments and (3) the effect of changes to operating segments on reporting
units and the related assessment of goodwill for impairment. In some cases, the SEC has insisted upon
restatement, indicating that segment reporting may represent an area of increased financial reporting risk.
ASC 350-20 does not require a company to disclose the identity or number of its reporting units. However,
if the SEC staff reviews a company’s segment reporting, management should be prepared to justify the
reporting units identified.

3A.9 Assigning assets acquired and liabilities assumed to reporting units

350-20-35-39
For the purpose of testing goodwill for impairment, acquired assets and assumed liabilities shall be
assigned to a reporting unit as of the acquisition date if both of the following criteria are met:
a. The asset will be employed in or the liability relates to the operations of a reporting unit.
b. The asset or liability will be considered in determining the fair value of the reporting unit.
Assets or liabilities that an entity considers part of its corporate assets or liabilities shall also be
assigned to a reporting unit if both of the preceding criteria are met. Examples of corporate items that
may meet those criteria and therefore would be assigned to a reporting unit are environmental
liabilities that relate to an existing operating facility of the reporting unit and a pension obligation that
would be included in the determination of the fair value of the reporting unit. This provision applies to
assets acquired and liabilities assumed in a business combination and to those acquired or assumed
individually or with a group of other assets.
To test goodwill for impairment at the reporting unit level, assets acquired and liabilities assumed should
be assigned to a reporting unit as of the date of acquisition. The purpose of this assignment process is to
establish the “carrying amount” of the reporting units so that the quantitative impairment test (i.e., the
comparison of the carrying amount of a reporting unit to its fair value) can be performed.
Both of the following criteria should be met for an acquired asset or assumed liability to be assigned to a
reporting unit:
• The asset will be employed in or the liability relates to the operations of a reporting unit
• The asset or liability will be considered in determining the fair value of the reporting unit
ASC 350-20 does not require the assignment of all assets acquired and liabilities assumed to a reporting
unit; only those meeting the above criteria should be assigned. Further, the Board noted that another
objective of the process is to assign to a reporting unit all of the assets and liabilities that would be
necessary for the reporting unit to operate as a business. For example, acquired cash or marketable
securities that are unrelated to any reporting unit and its working capital requirements, but are general
corporate assets of the acquired company, need not be assigned to a reporting unit. In addition, an
entity’s debt may be at the corporate level and/or reside at a subsidiary.
An entity’s estimate of a reporting unit’s fair value should include assigned debt if both of the following apply:
• The debt relates to the operations of the reporting unit.
• The debt is likely to be transferred in the event the reporting unit is sold.
As a result, absent the situations noted above, we believe that in applying the provisions in ASC 350-20-
35-39, an entity would not typically assign general corporate debt to its reporting units.
Also, the assets and liabilities assigned need not constitute a complete US GAAP balance sheet. Further,
while ASC 350-20 refers to acquired assets and assumed liabilities, assets and liabilities that are generated
or originated by a company should also be assigned to reporting units based on the criteria above.

3A.9.1 Determining the manner in which the carrying amount of a reporting unit is
derived (equity versus enterprise)
Some constituents have questioned the manner in which a reporting unit’s carrying amount should be
determined (i.e., under an “equity” premise or an “enterprise” premise). In paragraph BC4 of ASU 2010-
28, the FASB noted that the EITF evaluated different approaches for calculating the carrying amount of
reporting units. Eventually, the EITF decided not to prescribe how a reporting unit’s carrying amount
should be determined. However, the EITF observed that the manner in which the fair value and carrying
amount of the reporting unit are determined should be consistent.
When a reporting unit’s carrying amount is based on an equity premise, all liabilities (including debt) are
available for assignment to the reporting unit. Conversely, when a reporting unit’s carrying amount is
based on the enterprise premise, debt is excluded from the liabilities assigned to the reporting unit. When
the carrying amount of debt approximates its fair value, using either premise would not have an effect on
the quantitative impairment test. In addition, when no debt has been assigned to the reporting unit, the
carrying amount of the reporting unit will be the same under either premise.
Furthermore, in circumstances where the carrying amount of an asset or liability equals its fair value, its
assignment to a reporting unit will have an equal effect on both the carrying amount and the fair value of
the reporting unit. However, the carrying amount of an asset or liability will often differ from its fair value.
As a result, the selection of either the equity or enterprise premise or the decision to assign certain
assets and liabilities to a reporting unit may affect the outcome of the quantitative impairment test.
3A.9.2 Assignment of a contingent consideration asset or liability

Often the consideration transferred in a business combination may include a contingent consideration
arrangement. ASC 805 states that an acquirer should recognize the acquisition-date fair value of
contingent consideration as part of the consideration transferred in exchange for the acquiree. That
arrangement may represent an asset or liability.
When determining whether to assign a contingent consideration asset or liability to a reporting unit, the
criteria in ASC 350-20-35-39 should be considered. If the reporting unit is obligated to pay or has the
right to receive the contingent consideration, we believe the contingent consideration asset or liability
generally would be assigned to that reporting unit. In addition, it may be appropriate to assign a
contingent consideration arrangement to a reporting unit even if the reporting unit is not the legal
counterparty to the arrangement. This may arise if the reporting unit includes the business acquired and
a market participant would assume that obligation or right if the reporting unit was sold in a transaction.
3A.10 Assets or liabilities used in multiple reporting units

350-20-35-40
Some assets or liabilities may be employed in or relate to the operations of multiple reporting units. The
methodology used to determine the amount of those assets or liabilities to assign to a reporting unit shall
be reasonable and supportable and shall be applied in a consistent manner. For example, assets and
liabilities not directly related to a specific reporting unit, but from which the reporting unit benefits, could be
assigned according to the benefit received by the different reporting units (or based on the relative fair
values of the different reporting units). In the case of pension items, for example, a pro rata assignment
based on payroll expense might be used. A reasonable allocation method may be very general. For use in
making those assignments, the basis for and method of determining the fair value of the acquiree and other
related factors (such as the underlying reasons for the acquisition and management's expectations related
to dilution, synergies, and other financial measurements) shall be documented at the acquisition date.

Some assets or liabilities may be employed in or related to the operations of multiple reporting units. The
methodology used to determine the amounts to assign to each reporting unit in these cases should be
reasonable, supportable and applied in a consistent manner. For example, assets and liabilities that are
not directly related to a specific reporting unit, but provide benefits to the reporting unit, could be
assigned according to the benefit received by the different reporting units or based on the relative fair
values of the reporting units. One example of basing the assignment on the benefits received would be
assigning pension obligations in proportion to the payroll expense of the reporting units. The assignment
method used for particular assets and liabilities should be applied consistently. The basis for and method
of determining the fair value of the acquiree and other related factors (such as the underlying reasons
for the acquisition and management’s expectations related to dilution, synergies and other financial
measurements) in assigning assets and liabilities to multiple reporting units should be documented at the
acquisition date.
3A.10.1 Assets or liabilities accounted for at the corporate level

ASC 350-20 also requires the assignment of all applicable assets and liabilities that may be accounted for
at the corporate level, including environmental liabilities using the criteria noted in section 3A.10.
Additionally, when assets or liabilities do not meet the criteria in section 3A.10 and are not included in
the carrying amount of the reporting unit, they should be treated consistently in determining the fair
value of the reporting unit. See section 3A.1 for discussion of the goodwill impairment test.
For example, if the fair value of the reporting unit is determined based on discounted future cash flows of
the reporting unit on an unleveraged (or debt-free) basis (a common enterprise valuation methodology),
the debt associated with the reporting unit should be treated consistently (i.e., excluded) in determining the
carrying amount of the reporting unit so that the comparison of those values is meaningful. On the other
hand, if the debt relates to the operations of the reporting unit and would be considered in determining its
fair value (e.g., if a property assigned to the reporting unit secures a mortgage), the company should
include the debt in both the determination of the fair value and the carrying amount of the reporting unit.
See previous discussion at section 3A.9.1.
The goal of such assignment is to confirm that comparisons of the fair value to the carrying amount of
reporting units are on an “apples-to-apples” basis. Therefore, this assignment requires the company to
understand how items such as debt, accounts receivable, accounts payable, inventories, accrued
liabilities and other working capital items are treated in the valuation of the reporting unit so that those
items are treated consistently in assigning assets and liabilities to reporting units. Another objective of
this exercise is to assign to the reporting units all of the assets and liabilities that would be necessary for
that reporting unit to operate as a business. Therefore, to the extent that corporate items are reflected
in the fair value of a reporting unit, they should be assigned to the reporting unit. For example, pension
liabilities related to active employees would normally be assumed when acquiring a business. Therefore,
that type of liability should generally be included in determining the fair value of the reporting unit.
The FASB acknowledges that the requirement to assign corporate level assets and liabilities could be
considered inconsistent with ASC 280, which requires that the reported segment include only those
assets that are included in the measure of the segment’s assets that is used by the CODM. Therefore,
goodwill and other assets may not be included in reported segment assets. ASC 350-20 does not literally
require that goodwill and all other related assets and liabilities assigned to reporting units for the purpose
of testing goodwill for impairment be included in a company’s reported segment assets. Rather, the
assignment process is simply a method of identifying the reporting unit to which assets and liabilities
relate and determining the consolidated company’s carrying amount of reporting units. However, even
though an asset may not be included in reported segment assets, the asset or liability should be assigned
to the reporting unit for the purpose of the goodwill impairment test in accordance with the guidance
discussed above.

This assignment process does not affect a parent company’s cost basis in its subsidiaries, nor does it
require the subsidiary to change its basis in any assets or liabilities used for external reporting purposes
(i.e., the guidance does not require “pushdown” accounting in the separate financial statements of
subsidiaries). However, the bases of the reporting unit’s assets and liabilities used for goodwill impairment
tests should reflect the parent’s bases.
The following example illustrates the evaluation of the two criteria for assigning assets and liabilities to a
reporting unit for an entity with multiple reporting units when an asset is shared by the reporting units.
Illustration 3A-14: Allocation of a brand intangible maintained at the corporate level to reporting
units
Parent, a PBE, acquired Company A in a business combination on 1 July 20X4. As of the acquisition
date, Parent determined that Company A’s operations would be split between Parent’s two existing
reporting units, RU 1 and RU 2. However, Company A’s brand name (established in conjunction with the
acquisition by Parent) is maintained at the corporate level but benefits both RU 1 and RU 2. That is, both
RU 1 and RU 2 utilize the brand name to support their revenues without a charge from Parent. Parent
determines that the brand name would be considered in determining the fair value of both reporting
units. Parent performs its annual goodwill impairment assessment as of 1 October 20X4. Assume that as
of 1 October 20X4, the fair values of RU 1 and RU 2 are $15 million and $5 million, respectively, and the
carrying amount of the brand name is $4 million. EBITDA for the three months ended 30 September
20X4 was $4 million and $1 million for RU 1 and RU 2, respectively.
Analysis
We believe that there are various approaches by which Parent could assign the brand name to RU 1
and RU 2 that could be acceptable depending on the facts and circumstances. Approach 1 typically
would be appropriate when it is likely that the reporting units sharing the brand name would be sold
without ownership of the brand name. Approach 2 typically would be appropriate when one reporting
unit is the predominant user of the brand name. Approaches 3 and 4 could be appropriate when both
reporting units benefit equally from the brand name.
Approach 1 — Assign based on an assumed rental of the brand name by each reporting unit
Under this approach, Parent is considered the owner of the brand name and it is assumed that each
reporting unit “rents” the brand name from Parent. Accordingly, the carrying amount of the brand
name would not be assigned to either RU 1 or RU 2. Rather, the determination of the fair value of both
reporting units would include an assumption relating to the cost of renting the brand name. For
example, if Parent uses a discounted cash flow method to determine the fair value of its reporting
units, Parent would include a cash outflow based on a market royalty rate relating to the rental of the
brand name by each reporting unit.
When applying a market royalty rate for the use of a brand name, Parent should consider whether the
costs related to supporting the brand name (for example, advertising and marketing) are included at
the reporting unit level or at the corporate level (that is, outside of the reporting unit). Because the
reporting units are assumed to rent the brand name rather than own it, typically the reporting units
would not be responsible for the costs related to supporting the brand name. Therefore, those costs
would not be included at the reporting unit level. If those costs were included at the reporting unit level,
this fact would need to be considered when selecting the royalty rate so as to avoid double counting.

Approach 2 — Assign based on an assumed ownership of the brand name by one reporting unit and
rental of the brand name by the other reporting unit
Under this approach, Parent would assume that one of its reporting units (for this example, assume
RU 1) owns the brand name and that RU 2 is “renting” the brand name from RU 1. Accordingly, RU 1
would be assigned the full carrying amount of the brand name. Assuming Parent uses a discounted
cash flow method to measure the fair value of its reporting units, Parent would include in its
determination of the fair value of RU 1 a cash inflow based on a market royalty rate related to the
rental of the brand name. Parent would then include in its determination of the fair value of RU 2 a
cash outflow based on a market royalty rate related to the rental of the brand name (similar to the
exercise described in Approach 1).
Under this approach, the costs related to supporting the brand name would be assigned to the
reporting unit assumed to own the brand name (in this case RU 1); no such costs would be allocated to
the reporting unit assumed to rent the brand name (in this case RU 2).
Approach 3 — Assign based on benefits received
Under this approach, assume that Parent determines that reporting unit EBITDA is an appropriate
measure of the benefits received by each reporting unit. This approach would result in assigning the
carrying amount of the brand name of $4 million to RU 1 ($3.2 million1) and to RU 2 ($0.8 million2). If
a discounted cash flow method were used to measure the fair value of the reporting unit, there would
be no cash outflow related to the use of the brand name because it would be assumed to be owned by
each reporting unit. Also, the costs related to supporting the brand name would need to be considered
and, in this situation, would be allocated between RU 1 and RU 2 because both reporting units benefit
from the use of the brand name.
Approach 4 — Assign based on relative fair values of the reporting units
This approach would result in assigning the carrying amount of the brand name based on the relative
fair values of the reporting units. As a result, $3 million3 would be assigned to RU 1 and $1 million4
would be assigned to RU 2. Similar to Approach 3, if a discounted cash flow method were used to
measure the fair value of the reporting unit, there would be no cash outflow related to the use of the
brand name because it would be assumed to be owned by each reporting unit. Also, the costs related
to supporting the brand name would need to be considered and, in this situation, would be allocated
between RU 1 and RU 2 because both reporting units benefit from the use of the brand name.
We believe that this approach would be appropriate only when the reporting units benefit from the
brand name in direct proportion to their fair values.
__________________________
1
2
3
4

3A.11 Assigning goodwill to reporting units

350-20-35-41
For the purpose of testing goodwill for impairment, all goodwill acquired in a business combination
shall be assigned to one or more reporting units as of the acquisition date. Goodwill shall be assigned
to reporting units of the acquiring entity that are expected to benefit from the synergies of the
combination even though other assets or liabilities of the acquired entity may not be assigned to that
reporting unit. The total amount of acquired goodwill may be divided among a number of reporting
units. The methodology used to determine the amount of goodwill to assign to a reporting unit shall be
reasonable and supportable and shall be applied in a consistent manner. In addition, that methodology
shall be consistent with the objectives of the process of assigning goodwill to reporting units described
in paragraphs 350-20-35-42 through 43.
350-20-35-42
In concept, the amount of goodwill assigned to a reporting unit would be determined in a manner
similar to how the amount of goodwill recognized in a business combination is determined. That is:
a. An entity would determine the fair value of the acquired business (or portion thereof) to be
included in a reporting unit — the fair value of the individual assets acquired and liabilities assumed
that are assigned to the reporting unit. Subtopic 805-20 provides guidance on assigning the fair
value of the acquiree to the assets acquired and liabilities assumed in a business combination.
b. Any excess of the fair value of the acquired business (or portion thereof) over the fair value of the
individual assets acquired and liabilities assumed that are assigned to the reporting unit is the
amount of goodwill assigned to that reporting unit.
350-20-35-43
If goodwill is to be assigned to a reporting unit that has not been assigned any of the assets acquired
or liabilities assumed in that acquisition, the amount of goodwill to be assigned to that unit might be
determined by applying a with-and-without computation. That is, the difference between the fair value
of that reporting unit before the acquisition and its fair value after the acquisition represents the
amount of goodwill to be assigned to that reporting unit.
350-20-35-44
This Subtopic does not require that goodwill and all other related assets and liabilities assigned to
reporting units for purposes of testing goodwill for impairment be reflected in the entity’s reported
segments. However, even though an asset may not be included in reported segment assets, the asset
(or liability) shall be allocated to a reporting unit for purposes of testing for impairment if it meets the
criteria in paragraph 350-20-35-39.
Testing goodwill for impairment at the reporting unit level requires that all goodwill be assigned to one or
more reporting units as of the date of acquisition. All goodwill must be assigned to a reporting unit,
regardless of its source. For example, even goodwill that arises from applying pushdown accounting
pursuant to ASC 805 and fresh-start accounting pursuant to ASC 852 must be assigned to a reporting unit.

If goodwill from an acquisition is to be assigned to more than one reporting unit, ASC 350-20 requires
the methodology used be reasonable, supportable and applied in a consistent manner. Goodwill is
assigned to the reporting units that are expected to benefit from the synergies of the combination even
though other assets or liabilities of the acquired company may not be assigned to those reporting units. If
some portion of goodwill is deemed to relate to the entity as a whole, that portion of goodwill should be
assigned to all of the reporting units of the entity in a reasonable and supportable manner.
In addition to a methodology that is reasonable and supportable, the methodology used should be
consistent with the objectives of ASC 350-20-35-42 when goodwill is assigned to more than one
reporting unit at the acquisition date.
We believe that if all of the assets and liabilities of an acquired business are assigned to a specific reporting
unit, then the goodwill associated with that acquisition should also be assigned to that reporting unit, unless
it is clear that some other reporting unit is expected to benefit from the acquisition. If a reporting unit is
expected to benefit from the acquisition even though it was assigned no assets or liabilities of the acquired
company, then the “with-and-without” method is the best assignment method.
This approach requires determining the fair value of the reporting unit(s) that benefit from the acquisition.
In many circumstances, the acquirer’s calculation of the consideration transferred may include assumptions
about synergistic benefits that the acquiring company expects; in that case, the amount of goodwill to
assign to the reporting units benefited may be derived from the calculation of consideration transferred.
Other reasonable and supportable methods (other than the with-and-without method) may be appropriate,
depending on the facts and circumstances. However, the assignment method chosen should not result in an
immediate impairment of the acquired goodwill.
Depending on the facts and circumstances, we believe that the with-and-without method could be used to
assign goodwill to a reporting unit that has assets and/or liabilities assigned to it. That might be the case
when the with-and-without method would provide a more reasonable and supportable assignment of goodwill
based on how a company’s reporting units are expected to benefit from the synergies of the acquisition.
The following example illustrates the assignment of goodwill to more than one reporting unit using both the
direct and with-and-without methods.
Illustration 3A-15: Goodwill assigned to more than one reporting unit
Assume that Company A completes the acquisition of Company B for consideration transferred of $50
million. The fair value of the net working capital acquired is $8 million, the fair value of the acquired
identifiable tangible and intangible assets is $27 million and goodwill is $15 million. The acquisition is
to be integrated into two of Company A’s reporting units. There is no synergistic goodwill attributable
to other reporting units.
(in millions) Acquired net assets to be assigned to:

RU 1 RU 2 Total
Fair value of:
Net working capital $ 5 $ 3 $ 8
Tangible and intangible net assets 15 12 27
Net assets to be assigned $ 20 $ 15 $ 35
Analysis — direct method:
Using the direct method, Company A assigns goodwill to the reporting units based on the difference
between the fair value of the net assets and the fair value of the acquired business (or portion thereof)
to be assigned to the reporting units.

RU 1 RU 2 Total
Fair value of acquired business (or portion thereof)* $ 33 $ 17 $ 50
Analysis — “with-and-without” method:
Using the with-and-without method, Company A assigns goodwill to the reporting units based on the
difference between the fair value of the net assets to be assigned and the fair value of the acquired
business (or portion thereof). However, the fair value of the acquired business (or portion thereof) is
determined using a with-and-without method.
RU 1 RU 2 Total
Fair value of reporting unit after acquisition $ 95 $ 80 $ 175
Fair value of reporting unit prior to acquisition (62) (63) (125)
Fair value of acquired business or asset group* 33 17 50
* In this example, the sum of the fair values of the acquired businesses or asset groups equals the purchase price. In other
circumstances, this may not be the case due to synergies and other characteristics related to the relationship between the
businesses. In those cases, a reasonable and supportable method (e.g., a pro rata allocation) should be used to assign any
excess goodwill remaining after this allocation process.
3A.11.1 Entity-level goodwill

In certain circumstances, goodwill recognized relates to the company as a whole instead of particular
reporting units. For example, goodwill that arises when a company applies pushdown accounting or
excess reorganization value recognized pursuant to ASC 852 often relates to the company as a whole.
In those circumstances, the net assets would have been adjusted to their fair values, and an assignment
method might be based on the relative excess of fair value of the reporting units over the net assets of
the reporting units. An assignment method based on the relative fair values of all reporting units might
be appropriate provided that it does not result in an immediate goodwill impairment charge.
3A.11.2 Assignment of goodwill to reporting units for a mining entity

The EITF has considered the issue of whether an entity in the mining industry should assign goodwill to a
reporting unit that consists of an individual operating mine. Constituents raised questions because assigning
goodwill to an operating mine results in a day-two impairment of any assigned goodwill due to the fact that the
fair value of the reporting unit consists primarily of mineral deposits, which is a depleting asset. The EITF
reached a consensus that goodwill should be assigned to a reporting unit that includes an operating mine. The
EITF acknowledged that the assignment of goodwill to an individual operating mine likely will result in an
eventual goodwill impairment due to the depleting nature of the primary asset of the reporting unit and could
result in a day-two goodwill impairment. However, the EITF agreed that the guidance in ASC 350 was clear —
goodwill should be assigned to reporting units, and an individual operating mine may constitute a reporting
unit. As a result, the EITF agreed to discontinue discussion of this Issue and removed it from its agenda.
3A.11.3 Delay in assignment of goodwill

As noted above, goodwill is assigned, as of the acquisition date, to one or more reporting units that are
expected to benefit from the synergies of the business combination. In certain situations, a company may
be unable to determine the fair values to be assigned to all of the acquired identifiable assets and assumed
liabilities for some time after the business combination and may utilize all or a substantial portion of the
measurement period allowed by ASC 805 to finalize the initial accounting for the business combination.
See section 7.3 in our FRD, Business combinations, for more information on the measurement period.

If the fair value of the identifiable assets acquired and liabilities assumed are determined only provisionally
at the end of the current reporting period, ASC 350-20-50-1 recognizes that an entity may not have
completed the assignment of goodwill to the reporting units. However, prior to finalization of the
accounting for a business combination, an entity might be able to provisionally assign some or all of the
goodwill. Neither the guidance in ASC 350 nor the Basis for Conclusions of Statement 142 addressed the
assignment of provisional goodwill. However, we believe that the assignment of goodwill should not be
delayed because the accounting for the business combination is incomplete. Because ASC 350 has
specific disclosure requirements and ASC 280 requires companies that report segment information to
provide information about goodwill in total and for each reportable segment, we believe that provisionally
determined goodwill should be assigned at the end of a reporting period. Once the accounting for the
business combination is finalized, the provisional amounts assigned should be reassessed and adjustments
to the goodwill that was provisionally assigned should be made as necessary.
In addition, there is required disclosure of situations where a portion of goodwill has not yet been assigned
to a reporting unit as of the date of a company’s financial statements. If an acquisition closes shortly
before the company’s year-end, the company may not have sufficient time to complete its acquisition
accounting and/or assignment of goodwill to reporting units. The company should confirm that all goodwill
is assigned to the reporting units before it performs its next annual impairment test. However, if it is
determined that impairment indicators exist, we believe this goodwill must be assigned to a reporting unit
and tested for impairment.
3A.11.4 Impairment testing of recently acquired goodwill

There is no requirement to test goodwill for impairment on the date of acquisition. In addition, paragraph
BC382 of Statement 141(R) states that:
“The Boards acknowledged that overpayments are possible and, in concept, an overpayment should
lead to the acquirer’s recognition of an expense (or loss) in the period of the acquisition. However,
the Boards believe that in practice any overpayment is unlikely to be detectable or known at the
acquisition date. That is, the Boards are not aware of instances in which a buyer knowingly overpays
or is compelled to overpay a seller to acquire a business. Even if an acquirer thinks it might have
overpaid in some sense, the amount of overpayment would be difficult, if not impossible, to quantify.
Thus, the Boards concluded that in practice it is not possible to identify and reliably measure an
overpayment at the acquisition date. Accounting for overpayments is best addressed through
subsequent impairment testing when evidence of a potential overpayment first arises.”
We believe that this suggests that an entity should test the acquired goodwill (whether provisionally
determined or final) for impairment if impairment indicators exist. In addition, if the goodwill assessment
date follows shortly after an acquisition, a goodwill impairment test should be performed irrespective of
the status of the accounting for the business combination.
3A.11.4.1 Impairment testing in a subsequent period

We believe that if an entity tested provisional goodwill for impairment, that impairment test should be
retrospectively updated to account for any changes resulting from a qualifying measurement-period
adjustment as described in ASC 805. Qualifying measurement-period adjustments relate to facts and
circumstances that existed as of the acquisition date and any resulting change to the goodwill balance
reflects what the goodwill balance would have been as of the acquisition date. Therefore, any impairment
test performed in the provisional period should be updated to include the revised carrying value of the
reporting unit and/or goodwill balance because it may result in a different impairment charge than what
was originally determined.
See section 7.3.3 in our FRD, Business combinations, for more information on qualifying measurement-
period adjustments.

Illustration 3A-16: Impairment test of provisional goodwill during the measurement period
Consider the following facts:
• Company A acquired Company B on 1 August 20X0
• Company A included Company B in RU 1, one of its 3 existing reporting units
• Prior to the acquisition of Company B, RU 1 had existing goodwill of $8 million
• Company A’s annual goodwill assessment date is 1 October 20X0
• The accounting for the business combination was incomplete as of 1 October 20X0
• Preliminary goodwill recognized in the acquisition of Company B is $50 million, all of which was
assigned to RU 1 (resulting in a total of $58 million of goodwill assigned to RU 1)
• Following the acquisition, the carrying value of RU 1 was $600 million
• From the date of acquisition through 1 October 20X0, the fair value of RU 1 declined to $591 million
The assessment of goodwill for impairment as of 1 October 20X0 resulted in Company A recognizing
a goodwill impairment charge of $9 million for RU 1 leaving a goodwill balance of $49 million. On
1 February 20X1, Company A recognized a qualifying measurement-period adjustment that increased
the goodwill from the acquisition assigned to RU 1 by $10 million with a corresponding $10 million
decrease to the amount recorded on the acquisition date for an amortizable intangible asset. Assume
that the portion of amortization expense related to the qualifying measurement-period adjustment of
the intangible asset from 1 August 20X0 to 1 October 20X0 was $2 million. The effects of taxes have
been ignored.
Analysis
Because Company A recognized a qualifying measurement-period adjustment and tested provisional
goodwill for impairment prior to making the qualifying measurement period adjustment, it should
update the goodwill impairment test performed as of 1 October 20X0 to reflect the $2 million increase
in the carrying value of RU 1. The increase in the carrying value of RU 1 relates to the reversal of the
$2 million of amortization expense initially recognized during the period of 1 August 20X0 to
1 October 20X0.
As a result, the impairment charge is $11 million for RU 1 (the original $9 million impairment charge
plus an additional $2 million resulting from the provisional adjustment that increased the carrying
value of RU 1), to arrive at a goodwill balance of $47 million as of 1 October 20X0.
Consistent with the guidance on measurement-period adjustments, Company A would recognize the
additional $2 million impairment charge in the current period and would present or disclose the
amount of the adjustment that would have been recognized in prior periods, which in this case is the
entire additional $2 million impairment charge. Similarly, if the measurement-period adjustment had
resulted in a decrease of $2 million in the carrying value of RU 1 from the provisional amount tested,
Company A would recognize a corresponding reduction in the impairment charge of $2 million.

3A.11.5 Effect on segment disclosure

The requirement to assign all goodwill to reporting units does not mean that goodwill must be added to
the measure of reportable segment assets for purposes of reporting segment information in accordance
with ASC 280 unless the company actually assigns goodwill for internal reporting purposes. ASC 280
requires disclosure of segment assets based on information provided to the CODM in assessing performance
and allocating resources. The requirement to assign all goodwill to reporting units in accordance with
ASC 350-20 does not change the ASC 280 disclosure requirement. However, companies must disclose
the carrying amount of goodwill along with any changes in that carrying amount by reportable segment.
See section 4.2.1 further discussion.
3A.12 Reorganization of a company’s reporting structure

350-20-35-45
When an entity reorganizes its reporting structure in a manner that changes the composition of one or
more of its reporting units, the guidance in paragraphs 350-20-35-39 through 35-40 shall be used to
reassign assets and liabilities to the reporting units affected. However, goodwill shall be reassigned to
the reporting units affected using a relative fair value allocation approach similar to that used when a
portion of a reporting unit is to be disposed of (see paragraphs 350-20-40-1 through 40-7).
350-20-35-46
For example, if existing reporting unit A is to be integrated with reporting units B, C, and D, goodwill in
reporting unit A would be assigned to units B, C, and D based on the relative fair values of the three
portions of reporting unit A prior to those portions being integrated with reporting units B, C, and D.
Under ASC 350-20, assets and liabilities and goodwill must be reassigned to reporting units when a company
reorganizes its reporting structure such that the composition of one or more of its reporting units is
changed. The assets (excluding goodwill) and liabilities of the affected reporting units should be reassigned
using the guidance in ASC 350-20-35-39 and 35-40. However, goodwill should be reassigned to the affected
reporting units using a relative fair value approach similar to that used when a portion of a reporting unit
is disposed of. That is, the goodwill is assigned to the businesses in the reporting units based on their
relative fair values and then follows the businesses into the new reporting unit in the reorganization.
The FASB concluded that reorganizing a reporting unit is similar to selling a business that is part of a
reporting unit, and therefore, the same methodology should be used to assign goodwill in a reorganization.
If reporting units are being divided in the reorganization, the relative fair value approach will need to be
applied. However, this model is not necessary in cases in which reporting units are being combined into
a new reporting unit. In this case, we believe that the goodwill of the existing reporting units is simply
combined in the new reporting unit.
In general, we believe that a goodwill impairment test should be performed immediately before and after
a company reorganizes its reporting structure if the reorganization would affect the composition of one
or more of its reporting units. In this circumstance, performing the impairment test immediately before
and after the reorganization would help to confirm that the reorganization is not potentially masking a
goodwill impairment charge.

Illustration 3A-17: Goodwill assigned to a new reporting unit
Assume that Company A currently has three reporting units: RU 1, RU 2 and RU 3. Company A
reorganizes its reporting structure and transfers portions of RU 1, RU 2 and RU 3 into a newly formed
reporting unit, RU 4. Relevant amounts per reporting unit are as follows:

Fair values $ 100 $ 40 $ 60 $ 200
Goodwill 30 10 20 60
Fair value of transferred operations 20 20 15 55
Analysis:
Because goodwill is required to be assigned based on relative fair value, assignment of goodwill to RU 4
is as follows:
RU 1 RU 2 RU 3 Total
Goodwill (prior to reassignment) $ 30 $ 10 $ 20 $ 60
Goodwill assigned to RU 4 6 5 5 16
The following represents the fair values as well as the beginning and ending goodwill balances for each
reporting unit:
RU 1 RU 2 RU 3 RU 4 Total
Fair values $ 80 $ 20 $ 45 $ 55 $ 200
Goodwill (prior to reassignment) $ 30 $ 10 $ 20 $ 0 $ 60
Goodwill assigned to RU 4 (6) (5) (5) 16 0
Goodwill (after reassignment) $ 24 $ 5 $ 15 $ 16 $ 60
3A.13 Goodwill impairment testing by a subsidiary for standalone reporting

350-20-35-47
Subsidiary goodwill might arise from any of the following:
a. Acquisitions that a subsidiary made prior to its being acquired by the parent
b. Acquisitions that a subsidiary made subsequent to its being acquired by the parent
c. Goodwill arising from the business combination in which a subsidiary was acquired that the parent
pushed down to the subsidiary’s financial statements.
350-20-35-48
All goodwill recognized by a public or nonpublic subsidiary (subsidiary goodwill) in its separate financial
statements that are prepared in accordance with generally accepted accounting principles (GAAP)
shall be accounted for in accordance with this Subtopic. Subsidiary goodwill shall be tested for
impairment at the subsidiary level using the subsidiary’s reporting units. If a goodwill impairment loss
is recognized at the subsidiary level, goodwill of the reporting unit or units (at the higher consolidated
level) in which the subsidiary’s reporting unit with impaired goodwill resides must be tested for
impairment if the event that gave rise to the loss at the subsidiary level would more likely than not

reduce the fair value of the reporting unit (at the higher consolidated level) below its carrying amount
(see paragraph 350-20-35-3C(f)). Only if goodwill of that higher-level reporting unit is impaired would
a goodwill impairment loss be recognized at the consolidated level.
350-20-35-49
If testing at the consolidated level leads to an impairment loss, that loss shall be recognized at that
level separately from the subsidiary’s loss.
ASC 350-20 requires that goodwill reported in separate US GAAP financial statements issued by a
subsidiary be tested for impairment by the subsidiary. That is, the subsidiary tests all goodwill on its
books as if the subsidiary was a standalone entity in accordance with the provisions of ASC 350-20.
This requirement applies to both public and non-public subsidiaries issuing separate US GAAP financial
statements. Goodwill at a subsidiary can arise from acquisitions made prior to the company becoming a
subsidiary of the parent, from applying pushdown accounting when the parent acquired the subsidiary
and from acquisitions made after the company became a subsidiary of the parent.
If the subsidiary is required to recognize a goodwill impairment in its standalone financial statements, that
impairment is not recognized in the parent company’s financial statements (i.e., the impairment is not
“pushed up” to the higher level of consolidation). However, the parent company should consider whether
a goodwill impairment loss recognized at the subsidiary level indicates that the goodwill of the reporting
unit or units in which the subsidiary resides should be tested. That is, if the impairment of goodwill at the
subsidiary level indicates that it is more likely than not that the fair value of the affected reporting unit(s)
is below their carrying amount, the goodwill in that reporting unit(s) is tested for impairment. If the
goodwill impairment test at the consolidated level results in the recognition of an impairment loss, that
loss is recognized in the consolidated financial statements and does not change the amount of goodwill
impairment recognized in the subsidiary financial statements. The difference between the impairment loss
recognized at the subsidiary level and an impairment loss reported by the consolidated parent, if any, will
result in a recurring consolidating adjustment.
Similarly, a goodwill impairment loss recognized by a parent is not “pushed down” to the subsidiary. Rather,
the subsidiary will apply ASC 350-20 in its own standalone financial statements. However, if the parent
recognizes a goodwill impairment loss in the reporting unit(s) that includes a separate reporting subsidiary,
that subsidiary should consider if a goodwill impairment indicator exists with respect to its goodwill.
3A.14 Disposal of all or a portion of a reporting unit

Derecognition
350-20-40-1
When a reporting unit is to be disposed of in its entirety, goodwill of that reporting unit shall be
included in the carrying amount of the reporting unit in determining the gain or loss on disposal.
350-20-40-2
When a portion of a reporting unit that constitutes a business (see Section 805-10-55) or nonprofit
activity is to be disposed of, goodwill associated with that business or nonprofit activity shall be included
in the carrying amount of the business or nonprofit activity in determining the gain or loss on disposal.
350-20-40-3
The amount of goodwill to be included in that carrying amount shall be based on the relative fair values
of the business or nonprofit activity to be disposed of and the portion of the reporting unit that will be
retained. For example, if a reporting unit with a fair value of $400 is selling a business or nonprofit

activity for $100 and the fair value of the reporting unit excluding the business or nonprofit activity
being sold is $300, 25 percent of the goodwill residing in the reporting unit would be included in the
carrying amount of the business or nonprofit activity to be sold.
350-20-40-4
However, if the business or nonprofit activity to be disposed of was never integrated into the reporting
unit after its acquisition and thus the benefits of the acquired goodwill were never realized by the rest
of the reporting unit, the current carrying amount of that acquired goodwill shall be included in the
carrying amount of the business or nonprofit activity to be disposed of.
350-20-40-5
That situation might occur when the acquired business or nonprofit activity is operated as a standalone
entity or when the business or nonprofit activity is to be disposed of shortly after it is acquired.
350-20-40-6
Situations in which the acquired business or nonprofit activity is operated as a standalone entity are
expected to be infrequent because some amount of integration generally occurs after an acquisition.
350-20-40-7
When only a portion of goodwill is allocated to a business or nonprofit activity to be disposed of, the
goodwill remaining in the portion of the reporting unit to be retained shall be tested for impairment in
accordance with paragraphs 350-20-35-3A through 35-13 using its adjusted carrying amount.
The goodwill of a reporting unit that is to be disposed of in its entirety is included as part of the carrying
amount of the net assets to be disposed of in determining the gain or loss on disposal. When some
portion but not all of a reporting unit is disposed of and that portion constitutes a business or nonprofit
activity, some of the goodwill of the reporting unit should be assigned to the portion of the reporting unit
being disposed of. No goodwill would be assigned to a portion of a reporting unit being disposed of if it does
not meet the definition of a business or nonprofit activity. Section 2.1.3 of our FRD, Business combinations,
provides guidance in determining whether a group of assets constitutes a business under ASC 805.
activity, the assignment of goodwill is based on the relative fair values of the portion of the reporting unit
being disposed of (i.e., the business or nonprofit activity) and the portion of the reporting unit remaining.
This approach requires a determination of the fair value of both the business or nonprofit activity to be
disposed of and the business (or businesses) or nonprofit activity within the reporting unit that will be
retained. For example, if the fair value of the entire reporting unit prior to the disposal is $1,000, the fair
value of the portion of the reporting unit being disposed of is $300 and the fair value of the portion of
the reporting unit being retained is $700, then 30% of the goodwill in the reporting unit would be
included in the carrying amount of the business or nonprofit activity to be sold. Following the
assignment, the goodwill of the remaining reporting unit is tested for impairment even though it may be
between annual impairment test dates.
In some circumstances, a business or nonprofit activity that represents a portion of a reporting unit may
not have been disposed of at the balance sheet date but may qualify as held for sale pursuant to
ASC 205-20 or ASC 360-10. As previously discussed, the initial allocation of goodwill to the disposal
group would be based on the relative fair values of the portion of the reporting unit being disposed of and
the portion of the reporting unit remaining.
When the disposition will occur in a subsequent reporting period, a question arises about whether an entity
must continue to reassess the allocation of goodwill to the disposal group at each reporting date and the
date on which the disposal occurs. We believe that a reassessment may be appropriate if the relative fair
values of the business or nonprofit activity to be disposed of and the reporting unit to be retained may

have significantly changed (e.g., when there has been a significant change in market conditions).
However, if the entity reorganizes its reporting structure in connection with the planned disposition such
that the disposal group represents a new reporting unit, no reassessment would be performed in
subsequent reporting periods. See section 3A.12 for further discussion involving reorganization of a
company’s reporting structure. Refer to section 4.1.3.1 in our FRD, Impairment or disposal of long-lived
assets, for further discussion on allocating goodwill to a disposal group.
This relative fair value approach is not used when the business or nonprofit activity to be disposed of was
never integrated into the reporting unit after its acquisition (e.g., a business or nonprofit activity operated
as a standalone entity or a business or nonprofit activity that is to be disposed of shortly after acquisition).
In that case, the current carrying amount of the acquired goodwill should be included in the carrying
amount of the business or nonprofit activity to be disposed of because the rest of the reporting unit never
realized the benefits of the acquired goodwill. The FASB notes that situations in which the acquired
business or nonprofit activity is operated as a standalone entity would be infrequent because some
amount of integration generally occurs after an acquisition.
An issue arises when a business, nonprofit activity or reporting unit is disposed of that includes the net
assets and operations of a prior acquisition, but a portion of the goodwill arising from that acquisition
(i.e., the synergistic goodwill) had been assigned to a reporting unit that was not disposed of. In that
scenario, part of the cost basis of that prior acquisition remains recorded as goodwill in the reporting unit
retained even though all of the operations and net assets of that prior acquisition were disposed. In this
case, we believe that the entity should consider whether the reporting unit to which that synergistic
goodwill was assigned has experienced a goodwill impairment indicator because the benefit that gave
rise to the assignment of goodwill is now disposed of.
3A.14.1 Change in parent’s ownership interest results in loss of control

Under ASC 810-10, when a company that has a controlling financial interest in a business ceases to have
a controlling financial interest either through a sale of its interest or other means described in that
guidance, the company derecognizes the assets and liabilities of the company, including goodwill. The
carrying amount of the net assets of the company being derecognized, including goodwill, is used in
computing the gain or loss. The goodwill derecognized is no longer assigned to a reporting unit for
purposes of impairment testing.
3A.14.2 Assigning goodwill to a business transferred in a common control transaction

Often, an entity will transfer a business to another entity (receiving entity) in a common control
transaction. If the transferred business is part of a larger reporting unit at the consolidated entity level
and the parent has not previously pushed down the goodwill to the transferred business, questions arise
in practice regarding the amount of goodwill that should be assigned to the transferred business by the
transferring entity.
Depending on the facts and circumstances, we believe the following two options may be used by the
transferring entity to assign goodwill to the transferred business for purposes of determining the
carrying amount of the business being disposed of:
• The goodwill of the reporting unit can be assigned to the transferred business based on the relative fair
values of the retained portion of the reporting unit and the transferred business on the date of transfer.
• The historical cost approach in ASC 805-50-30-5 can be used to identify the goodwill value assigned
to the transferred business in the original acquisition.
In accordance with ASC 350-20, the transferring entity is required to test the remaining goodwill for impairment.

Regardless of the option used by the transferring entity to assign goodwill to the transferred business, the
receiving entity in the common control transaction will record the transferred goodwill at the ultimate
parent’s historical cost in accordance with ASC 805-50-30-5. This may result in a difference between the
goodwill assigned to the transferred business by the transferring entity and the goodwill recorded by the
receiving entity.
Companies should determine the appropriate assignment method based on the specific facts and circumstances.
Although the balance of goodwill would not change at the ultimate parent entity on a consolidated basis,
the ultimate parent entity would need to consider whether there has been a change in the composition of
its reporting units as a result of the reorganization transaction. See guidance in section 3A.12 as it
relates to the approach followed when reassigning goodwill to reporting units following a reorganization.
3A.14.3 Assignment of goodwill in a spin-off

3A.14.3.1 Accounting by parent
When an entity spins off a reporting unit(s) or a component(s) of a reporting unit that constitutes a
business as defined under ASC 805, goodwill of the reporting unit should be assigned to the business
being spun off. That is, any goodwill assigned to the business being spun off would be derecognized from
the parent’s balance sheet. Goodwill is assigned to the business being spun off using the relative fair
value approach discussed in section 3A.14.
3A.14.3.2 Accounting by spinnee

Goodwill recognized in the spinnee’s balance sheet may differ from the amount assigned by the parent based
on the relative assignment process. While the parent’s accounting follows the relative fair value approach,
we believe a “historical goodwill concept” generally would be applied in the standalone financial statements
of the spinnee. Under this concept, any acquisition-specific goodwill related to a previous acquisition of an
entity that would be included in the spin-off would be presented in the stand-alone financial statements of
the business being spun off. The stand-alone entity would be required to identify its reporting units and
perform a goodwill impairment test for all prior periods. The goodwill impairment test at the standalone level
may yield an impairment charge that was not required to be recognized at the parent level.
Illustration 3A-18: Assignment of goodwill in a spin-off
On 1 January 20X8, Company A acquires Company B for consideration transferred of $200 million.
The fair value of the identifiable net assets acquired is $160 million and goodwill is $40 million.
Company B will be placed in reporting unit RU 3. RU 3 also includes the net assets ($100 million) and
goodwill ($20 million) of Company C, which was acquired by Company A on 1 January 20X6. As part
of the Company B acquisition, Company A’s two other reporting units (RU 1 and RU 2) are expected to
benefit from the synergies of the combination. As such, Company A assigns goodwill of $30 million
to RU 3, $6 million to RU 1 and $4 million to RU 2. Assume that prior to the acquisition, RU 1 and
RU 2 had no goodwill recorded. In addition, none of the acquired assets and assumed liabilities was
assigned to RU 1 or RU 2.

Net assets (excluding goodwill) $ 60 $ 50 $ 260(1) $ 370
Goodwill 6 4 50(2) 60
Total net assets $ 66 $ 54 $ 310 $ 430
On 1 January 20X1, Company A decides to spin off Company B. As of 1 January 20X1, the fair value
of RU 3 was $350 million ($245 million related to Company B and $105 million related to Company C).

Analysis
Accounting by parent (Company A)
In determining the amount of goodwill to derecognize, Company A should use the relative fair value
approach. As such, Company A should derecognize goodwill of $35 million [($245 million/$350
million) x $50 million] associated with the spin-off of Company B. Note that none of the goodwill
assigned to RU 1 and RU 2 is considered in determining the amount of goodwill to derecognize. The
remaining goodwill balance in RU 3 should be tested for impairment in accordance with ASC 350-20-
40-7.
Accounting by spinnee (Company B)

The standalone financial statements of the spinnee (Company B) would include goodwill of $40 million.
Because Company B has to account for the goodwill using the historical goodwill concept, the $40
million acquisition-specific goodwill related to Company A’s acquisition of Company B on 1 January
20X8 would be presented in the standalone financial statements of Company B.
__________________________
1
Company B’s net assets (excluding goodwill) of $160 million plus Company C’s net assets (excluding goodwill) of $100 million.
2
Company B’s goodwill of $30 million ($40 million less $10 million assigned to RU 1 and RU 2) plus Company C’s goodwill of
$20 million.
3A.15 Goodwill impairment testing when a noncontrolling interest exists

350-20-35-57A
If a reporting unit is less than wholly owned, the fair value of the reporting unit as a whole shall be
determined in accordance with paragraphs 350-20-35-22 through 35-24, including any portion
attributed to the noncontrolling interest. Any impairment loss measured in the goodwill impairment
test shall be attributed to the parent and the noncontrolling interest on a rational basis. If the
reporting unit includes only goodwill attributable to the parent, the goodwill impairment loss would be
attributed entirely to the parent. However, if the reporting unit includes goodwill attributable to both
the parent and the noncontrolling interest, the goodwill impairment loss shall be attributed to both the
parent and the noncontrolling interest.
350-20-35-57B
If all or a portion of a less-than-wholly-owned reporting unit is disposed of, the gain or loss on disposal
shall be attributed to the parent and the noncontrolling interest.
Under ASC 805, when a company initially acquires a controlling, but less than 100%, interest in another
company, the acquiring company recognizes the assets acquired, liabilities assumed and any
noncontrolling interest at fair value (with limited exception) and recognizes goodwill to the extent that
the consideration transferred exceeds amounts assigned to the net identifiable assets acquired.
If a reporting unit is less than wholly owned, the fair value of the reporting unit as a whole is determined
in accordance with ASC 350-20-35-22 through 35-24, including any portion attributed to the
noncontrolling interest. Any goodwill impairment that results from applying the quantitative impairment
test is attributed to the controlling and noncontrolling interests on a rational basis.
While the allocation of earnings to the controlling and noncontrolling interests often will be as straightforward
as multiplying earnings by the relative ownership percentages, that approach will not be appropriate for
allocating goodwill impairment. Particular care must be taken when a premium is paid to obtain control of

an entity. And, as a result, the controlling and noncontrolling interests’ bases in acquired goodwill may
not be proportional to their ownership interests because the premium may not be allocated proportionately to
the controlling and noncontrolling interests. Refer to section 4.6.2 of our FRD, Business combinations,
for additional discussion on attribution of a premium between the controlling and noncontrolling interests.
The following is an example of allocating a goodwill impairment charge between a controlling and
noncontrolling interest when the control premium is determined to relate only to the controlling interest:
Illustration 3A-19: Allocation of a goodwill impairment charge to the noncontrolling interest
XYZ Corp acquires 90% of the equity interest in ABC Corp for $400 million. XYZ Corp determines the
fair value of the noncontrolling interest of ABC Corp is $40 million. The fair value of the identifiable
net assets determined under ASC 805 is $300 million. XYZ Corp determined that ABC Corp should be
in a new reporting unit because ABC Corp is not economically similar to any of its other reporting
units. On the acquisition-date, the following was determined:
(in millions)
Fair value of consideration transferred $ 400
Fair value of noncontrolling interest 401
Total 440
Fair value of identifiable net assets (300)
Goodwill recognized 140
Goodwill attributable to controlling interest 1302
Goodwill attributable to noncontrolling interest 103
One year after the acquisition, a new company opened for business that directly competes with the
newly acquired reporting unit of XYZ Corp. Due to this new competition, revenues of the newly formed
reporting unit declined. As a result, the fair value of the reporting unit falls to $380 million. For this
example, assume there were no indicators of impairment evident prior to XYZ Corp’s annual
assessment and no change in the fair value of the identifiable net assets. In addition, no other
impairment under ASC 360-10 is required to be recognized. The effects of taxes have been ignored.
Quantitative impairment test

(in millions)
Carrying amount of reporting unit 440
Impairment loss (60)
Goodwill impairment loss attributable to the controlling interest $ 564
Goodwill impairment loss attributable to the noncontrolling interest $ 45
_____________________________________
1
The fair value of the noncontrolling interest is not proportionate to its ownership interest because the noncontrolling interest
is not expected to share ratably in all of the benefits expected to be generated by XYZ Corp.
2
The goodwill of $130 million attributable to the controlling interest is calculated as follows: [($400 million) — (90% x $300 million)].
3
The goodwill of $10 million attributable to the noncontrolling interest is calculated as follows: [($40 million) — (10% x $300 million)].
4
loss of $56 million attributable to the controlling interest is calculated as follows: [($130 million/$140 million) x $60 million].
5
loss of $4 million attributable to the noncontrolling interest is calculated as follows: [($10 million/$140 million) x $60 million].

3A.15.1 Goodwill generated before the effective date of the guidance in ASC 810
If a reporting unit includes goodwill that is attributable only to a parent’s basis in a partially owned
subsidiary for which acquisition accounting was completed pursuant to Statement 141, any goodwill
impairment charge (whether recognized before or after the provisions of ASC 810 are adopted) would be
attributed entirely to the parent.
Because a business combination achieved in stages and accounted for under Statement 141 (and APB 16)
followed step acquisition accounting (that is, the noncontrolling interest was not initially measured at fair
value), it is inappropriate to determine the noncontrolling interest’s basis in any goodwill recognized
using its relative ownership in the subsidiary. Given the prohibition on retroactively applying ASC 805,
the goodwill recognized by the controlling interest should continue to be respected, even after the
provisions of ASC 805 and ASC 810 are adopted. This is because the noncontrolling interest does not
have a basis in the goodwill arising from acquisitions accounted for under Statement 141 or APB 16, if
the goodwill becomes impaired after the provisions of ASC 810 are adopted, the entire impairment
charge would be allocated to the controlling interest.
3A.15.2 Reallocation of goodwill upon changes in a parent’s ownership interest

ASC 810 requires that changes in a parent’s ownership interest in a subsidiary while the parent retains
its controlling financial interest are to be accounted for as equity transactions. Neither gains nor losses
on those transactions are recognized in net income, and the carrying amounts of the subsidiary’s assets
(including goodwill) and liabilities should not be changed. In accounting for such transactions under
ASC 810, the carrying amount of the noncontrolling interest should be increased/decreased to reflect
the change in the noncontrolling interest’s ownership in the subsidiary’s net assets (that is, the amount
attributed to the additional noncontrolling interests should reflect its proportionate ownership
percentage in the subsidiary’s net assets acquired).
For impairment testing purposes, we believe goodwill should be reallocated between the controlling and
noncontrolling interests based on the changes in ownership interests. See below for an illustration of
this concept:
Illustration 3A-20: Reallocation of goodwill upon a change in parent’s ownership interest
On 1 January 20X3, Parent pays $920 in cash to acquire 80% of Subsidiary, which owns net assets
with a fair value of $1,000. The fair value of the 20% noncontrolling interest on the acquisition date is
$220. The business combination is accounted for under ASC 805 and $140 [($920 + $220) —
$1,000] of goodwill is recognized ($120 [$920 — (80% x $1,000)] attributable to Parent and $20
[$220 — (20% x $1,000)] attributable to the noncontrolling interest, due to the existence of a control
premium that does not benefit the controlling and noncontrolling shareholders proportionately).
and goodwill of Subsidiary as of the acquisition date:
Share of Share of
Parent $ 800 $ 120 $ 920

Total $1,000 $ 140 $1,140
On 30 June 20X3, Parent acquires an additional 5% interest in Subsidiary for $60 cash. For illustrative
purposes, the total fair value of the net assets of Subsidiary as of 30 June 20X3 is still $1,000.

Analysis
With the acquisition of an additional 5% interest, Parent’s ownership interest increased to 85%. Parent
acquired 25% (5% / 20%) of the noncontrolling interest balance at 30 June 20X3, or $55 ($220 x
25%). This would result in goodwill of $5 (25% x $20) being reallocated from the noncontrolling
interest to Parent.
Parent would record the following journal entry to reflect its acquisition of the additional 5% interest:
Noncontrolling interest ($220 x 25%) $ 55

Equity of Parent 5
Cash $ 60
and goodwill of Subsidiary after Parent’s acquisition of the additional 5% interest:
Share of Share of
Parent $ 850 $ 125 $ 975

Total $ 1,000 $ 140 $ 1,140
The illustration above describes a scenario in which a parent increased its ownership interest in a subsidiary.
If a parent decreases its ownership interest in a subsidiary (either by selling a portion of the subsidiary’s
shares it holds or causing the subsidiary to issue new shares), we believe the above methodology is also
appropriate. Because ASC 350 does not specifically address this circumstance, there may be diversity in
practice and as such other alternatives may also be acceptable.
3A.16 Tax effects of goodwill impairments

See section 11.8 in our FRD, Income taxes, for a discussion of the tax implications pertaining to the
impairment of identifiable intangible assets and goodwill.
3A.17 Goodwill related to equity method investments

350-20-35-58
323-10-35-13 (equity method goodwill) shall not be amortized.
350-20-35-59
Subtopic. Equity method investments shall continue to be reviewed for impairment in accordance with
paragraph 323-10-35-32.

investee were a consolidated subsidiary. When an investee meets the definition of a business, any excess
of the cost of the investment over the proportional fair value of the assets and liabilities of the investee is
reflected in the “memo” accounts as goodwill, commonly referred to as “equity method goodwill.”
The investor’s unit of account for evaluating impairment associated with an equity method investment
is the investment as a whole. Any equity method goodwill is not amortized and is not separately tested
for impairment under the provisions of ASC 350. Refer to section 6.8 of our FRD, Equity method
investments and joint ventures, for a discussion of testing for other-than-temporary impairment of an
equity method investment.
Goodwill on the investee’s balance sheet is subject to the ASC 350-20 requirements in the investee’s
separate financial statements. An equity method investor recognizes its portion of an equity method
investee’s goodwill impairment charge, adjusted for any basis differences. Further, if an equity method
investee recognizes a goodwill impairment loss, the investor should consider whether its carrying
amount of the investee might be impaired. See sections 5.4.1 and 6.10.1 in our FRD, Equity method
investments and joint ventures, for further discussion about equity method goodwill and investor
accounting for impairments recognized by the investee, respectively.
3A.18 Goodwill resulting from a subsidiary’s acquisition of an entity

A consolidated subsidiary that acquires another business in a business combination should reflect all of
the goodwill resulting from the acquisition in its separate financial statements, regardless of the amount
of goodwill that the parent assigns to the reporting unit in which the subsidiary resides.
Illustration 3A-21: Goodwill resulting from an acquisition by a subsidiary
Assume the operations of Subsidiary A are included, in their entirety, in Reporting Unit 1 of the
Parent. Subsidiary A acquires Target and the acquisition results in goodwill of $100 million. The
Parent believes that synergies related to the acquisition will benefit both Reporting Unit 1 and
Reporting Unit 2 and, therefore, assigns $80 million of the acquired goodwill to Reporting Unit 1 and
$20 million to Reporting Unit 2.
Analysis
Subsidiary A should recognize $100 million of goodwill in its separate financial statements and assign
that goodwill to its reporting units in accordance with ASC 350-20.
3A.19 Deferred income taxes

350-20-35-61
Paragraph 805-740-25-3 through 25-4 states that deferred income taxes are not recognized for any
portion of goodwill for which amortization is not deductible for income tax purposes. For guidance on
recognition of deferred income taxes related to goodwill when amortization of goodwill is deductible
for tax purposes, see paragraphs 805-740-25-6 through 25-9.

350-20-35-8B
If a reporting unit has tax deductible goodwill, recognizing a goodwill impairment loss may cause a
change in deferred taxes that results in the carrying amount of the reporting unit immediately
exceeding its fair value upon recognition of the loss. In those circumstances, the entity shall calculate
the impairment loss and associated deferred tax effect in a manner similar to that used in a business
combination in accordance with the guidance in paragraphs 805-740-55-9 through 55-13. The total
loss recognized shall not exceed the total amount of goodwill allocated to the reporting unit. See
Example 2A in paragraphs 350-20-55-23A through 55-23C for an illustration of the calculation.

350-20-55-23A
Goodwill is deductible for tax purposes for some business combinations in certain jurisdictions. In those
jurisdictions, a deferred tax asset or deferred tax liability is recorded upon acquisition on the basis of
the difference between the book basis and the tax basis of goodwill. When goodwill of a reporting unit
is tax deductible, the impairment of goodwill creates a cycle of impairment because the decrease in the
book value of goodwill increases the deferred tax asset (or decreases the deferred tax liability) such
that the carrying amount of the reporting unit increases. However, there is no corresponding increase
in the fair value of the reporting unit and this could trigger another impairment test.
ASC 740 states that deferred taxes are not recognized for any portion of goodwill for which amortization
is not deductible for tax purposes. However, deferred taxes are recognized for certain portions of
goodwill that are deductible for tax purposes (ASC 805-740-25-8 and 25-9).
Goodwill amortization is deductible for tax purposes in certain jurisdictions. If that’s the case, recognizing a
goodwill impairment charge would increase a deferred tax asset or decrease a deferred tax liability. Either
change would result in the carrying amount of the reporting unit immediately exceeding its fair value,
which would require another impairment charge. To address this issue, the guidance requires an entity
to calculate the impairment charge and the deferred tax effect using a simultaneous equations method that
is similar to how an entity measures goodwill and related deferred tax assets in a business combination.
See our FRD, Income taxes, for further information on the accounting for tax-deductible goodwill.
The following example based on ASC 350-20-55-23A through 23D illustrates the use of the simultaneous
equations method to account for the increase in the carrying amount from the deferred tax benefit when
tax deductible goodwill is present.
Illustration 3A-22: Impairment test when goodwill is tax deductible
Beta Entity has goodwill from an acquisition in a reporting unit. All of the goodwill allocated to the
reporting unit is tax deductible. The reporting unit has a book value of goodwill of $400, deferred tax
assets of $200 relating to the tax-deductible goodwill, and book value of other net assets of $400. The
reporting unit is subject to a 25% income tax rate. Beta Entity estimated the fair value of the reporting
unit to be $900.
Preliminary Carrying
deferred amount after
Carrying Preliminary tax preliminary
amount Fair value impairment adjustment impairment
Goodwill $ 400 $ – $ (100) $ – $ 300

Deferred taxes 200 – – 25 225
Other net assets 400 – – – 400
Total $ 1,000 $ 900 $ (100) $ 25 $ 925

Analysis
The carrying amount of the reporting unit immediately after the impairment charge exceeds its fair
value by the amount of the increase in the deferred tax asset calculated as 25% of the impairment
charge. To address the circular nature of the carrying amount exceeding the fair value, Beta Entity
would apply the simultaneous equations method to the reporting unit, as follows:
Simultaneous equations method: [tax rate/(1 — tax rate)] × (preliminary temporary difference) =
deferred tax asset
Deferred tax asset = 25%/(1 — 25%) × $100 = $33
Carrying
Adjustment amount
Carrying Preliminary for after
amount Fair value impairment equation impairment
Goodwill $ 400 $ – $ (100) $ (33) $ 267

Deferred taxes 200 – – 33 233
Other net assets 400 – – – 400
Total $ 1,000 $ 900 $ (100) $ 0 $ 900
Beta Entity would report a $133 goodwill impairment charge partially offset by a $33 deferred tax
benefit recognized in the income tax line. If the impairment charge calculated using the equation
exceeds the total goodwill allocated to a reporting unit, the total impairment charge would be limited
to the goodwill amount.

4 Financial statement presentation and
disclosure requirements
4.1 Financial statement presentation

350-20-45-1
The aggregate amount of goodwill shall be presented as a separate line item in the statement of
financial position.
350-20-45-2
The aggregate amount of goodwill impairment losses shall be presented as a separate line item in the
income statement before the subtotal income from continuing operations (or similar caption) unless a
goodwill impairment loss is associated with a discontinued operation.
350-20-45-3
A goodwill impairment loss associated with a discontinued operation shall be included (on a net-of-tax
basis) within the results of discontinued operations. For guidance on reporting discontinued
operations, see Subtopic 205-20.
Presentation of Financial Statements — Discontinued Operations

Relationships
205-20-60-4
For guidance on reporting a goodwill impairment loss associated with a discontinued operation, see
paragraph 350-20-45-3.

350-30-45-1
At a minimum, all intangible assets shall be aggregated and presented as a separate line item in the
statement of financial position. However, that requirement does not preclude presentation of
individual intangible assets or classes of intangible assets as separate line items.
350-30-45-2
The amortization expense and impairment losses for intangible assets shall be presented in income
statement line items within continuing operations as deemed appropriate for each entity.

4 Financial statement presentation and disclosure requirements
350-30-45-3
Paragraphs 350-30-35-9 through 35-12 and 350-30-35-15 through 35-17 require that an intangible
asset be tested for impairment when it is determined that the asset shall no longer be amortized or
shall begin to be amortized due to a reassessment of its remaining useful life. An impairment loss
resulting from that impairment test shall not be recognized as a change in accounting principle.
4.1.1 Balance sheet presentation

ASC 350 requires that the aggregate amount of goodwill be presented as a separate line item in the
balance sheet. In deliberating Statement 142, the FASB concluded that goodwill was sufficiently different
from other assets to require that it be displayed separately on the balance sheet.
ASC 350 also requires that, at a minimum, the aggregate balance of intangible assets (excluding goodwill) be
shown as a separate line item on the balance sheet. This does not preclude the presentation of individual
intangible assets or classes of intangible assets as separate line items. In addition, the SEC’s Regulation S-X,
Rule 5-02 requires separate presentation in the balance sheet of each class of intangible asset that is in
excess of five percent of total assets.
Companies should continue to appropriately classify intangible assets as either current or non-current as
required by ASC 210. We believe that there will be limited circumstances in which an intangible asset will
be classified as current (e.g., a production backlog that will be completed and delivered within one year).
Additionally, we believe that the practice of reclassifying the amount of the coming year’s amortization
of an intangible asset to current assets is inappropriate.
4.1.2 Income statement presentation

Goodwill impairment losses should be presented as a separate line item in the income statement before the
subtotal “income from continuing operations” (or similar caption) unless a goodwill impairment loss is
associated with a discontinued operation. A goodwill impairment loss associated with a discontinued
operation should be included within the results of discontinued operations. Any portion of goodwill assigned
to net assets that represent a business disposed of (as discussed in section 3.14 (before the adoption of
ASU 2017-04) or section 3A.14 (after the adoption of ASU 2017-04)) should be recognized as part of
the gain or loss on disposal of those assets and not with other goodwill impairment losses.
The amortization expense related to intangible assets being amortized and any impairment loss related
to intangible assets should be presented within continuing operations in the income statement line items
deemed appropriate for the reporting company. Amortization expense is not required to, but may be,
separately reported on the face of the income statement. Alternatively, amortization expense may be
included in the income statement line item to which it relates. If the underlying intangible asset is used in
the operations of the company, we believe that the related amortization expense should be included in
the determination of operating income. If not reported separately in the income statement, total
amortization expense for the period is required to be disclosed in the notes to the financial statements.
4.1.3 Additional presentation considerations for private companies and not-for-

profit entities
Private companies and NFPs that have adopted the goodwill amortization accounting alternative have
different presentation requirements than those discussed above. Refer to section A.2.4.2 for those
requirements.

4.2 General disclosure requirements

4.2.1 Goodwill
Disclosure
350-20-50-1
The changes in the carrying amount of goodwill during the period shall be disclosed, showing
separately (see Example 3 [paragraph 350-20-55-24]):
a. The gross amount and accumulated impairment losses at the beginning of the period
b. Additional goodwill recognized during the period, except goodwill included in a disposal group
that, on acquisition, meets the criteria to be classified as held for sale in accordance with
paragraph 360-10-45-9
c. Adjustments resulting from the subsequent recognition of deferred tax assets during the period in
accordance with paragraphs 805-740-25-2 through 25-4 and 805-740-45-2
d. Goodwill included in a disposal group classified as held for sale in accordance with paragraph 360-
10-45-9 and goodwill derecognized during the period without having previously been reported in
a disposal group classified as held for sale
e. Impairment losses recognized during the period in accordance with this Subtopic
f. Net exchange differences arising during the period in accordance with Topic 830
g. Any other changes in the carrying amounts during the period
h. The gross amount and accumulated impairment losses at the end of the period.
Entities that report segment information in accordance with Topic 280 shall provide the above
information about goodwill in total and for each reportable segment and shall disclose any significant
changes in the allocation of goodwill by reportable segment. If any portion of goodwill has not yet been
allocated to a reporting unit at the date the financial statements are issued, that unallocated amount
and the reasons for not allocating that amount shall be disclosed.
Pending Content:
350-20-50-1A
Entities that have one or more reporting units with zero or negative carrying amounts of net assets shall
disclose those reporting units with allocated goodwill and the amount of goodwill allocated to each and in
which reportable segment the reporting unit is included.
A reconciliation of the carrying amount of goodwill at the beginning of the period to the carrying amount
at the end of the period is required. This reconciliation should include the beginning gross goodwill
amount (which should represent the gross goodwill acquired in a previous business combination) and any
accumulated impairment losses at the beginning of the period.

Prior to adopting ASU 2017-04, an entity is not required to disclose the existence of reporting units with
zero or negative carrying amounts. Following the adoption of ASU 2017-04, an entity that has one or
more reporting units with zero or negative carrying amounts of net assets must disclose those reporting
units with allocated goodwill, the amount of goodwill allocated to each and the reportable segment in
which the reporting unit is included. In paragraph BC45 of ASU 2017-04, the Board explains that these
required disclosures provide useful information to users of financial statements because these reporting
units may not record an impairment charge under a one-step impairment test.
4.2.1.1 Additional disclosure considerations for private companies and not-for-profit entities
Private companies and NFPs that have adopted the goodwill amortization accounting alternative have
different disclosure requirements than those discussed above. Refer to section A.2.4.3 for those
requirements.
Private companies and NFPs that have adopted the goodwill triggering event evaluation accounting
alternative have additional disclosure requirements beyond those discussed above. Refer to section
A.3.3 for those requirements.
4.2.2 General intangible assets other than goodwill

4.2.2.1 Disclosures in period of acquisition
Disclosure
350-30-50-1
For intangible assets acquired either individually or as part of a group of assets (in either an asset
acquisition, a business combination, or an acquisition by a not-for-profit entity), all of the following
information shall be disclosed in the notes to financial statements in the period of acquisition:
a. For intangible assets subject to amortization, all of the following:
1. The total amount assigned and the amount assigned to any major intangible asset class
2. The amount of any significant residual value, in total and by major intangible asset class
3. The weighted-average amortization period, in total and by major intangible asset class.
b. For intangible assets not subject to amortization, the total amount assigned and the amount
assigned to any major intangible asset class.
c. The amount of research and development assets acquired in a transaction other than a business
combination or an acquisition by a not-for-profit entity and written off in the period and the line
item in the income statement in which the amounts written off are aggregated.
d. For intangible assets with renewal or extension terms, the weighted-average period before the
next renewal or extension (both explicit and implicit), by major intangible asset class.
This information also shall be disclosed separately for each material business combination or
acquisition by a not-for-profit entity or in the aggregate for individually immaterial business
combinations or acquisitions by a not-for-profit entity that are material collectively if the aggregate
fair values of intangible assets acquired, other than goodwill, are significant.

4.2.2.2 Recurring disclosures when statement of financial position is presented

Disclosure
350-30-50-2
The following information shall be disclosed in the financial statements or the notes to financial
statements for each period for which a statement of financial position is presented:
a. For intangible assets subject to amortization, all of the following:
1. The gross carrying amount and accumulated amortization, in total and by major intangible
asset class
2. The aggregate amortization expense for the period
3. The estimated aggregate amortization expense for each of the five succeeding fiscal years.
b. For intangible assets not subject to amortization, the total carrying amount and the carrying
amount for each major intangible asset class
c. The entity’s accounting policy on the treatment of costs incurred to renew or extend the term of a
recognized intangible asset
d. For intangible assets that have been renewed or extended in the period for which a statement of
financial position is presented, both of the following:
1. For entities that capitalize renewal or extension costs, the total amount of costs incurred in
the period to renew or extend the term of a recognized intangible asset, by major intangible
asset class
2. The weighted-average period before the next renewal or extension (both explicit and
implicit), by major intangible asset class.
Example 13 (see paragraph 350-30-55-39) illustrates these disclosure requirements.
350-30-50-4
For a recognized intangible asset, an entity shall disclose information that enables users of financial
statements to assess the extent to which the expected future cash flows associated with the asset are
affected by the entity’s intent or ability (or both intent and ability) to renew or extend the arrangement.
4.3 Disclosures surrounding impairment

4.3.1 Impairment of goodwill
Disclosure
350-20-50-2
For each goodwill impairment loss recognized, all of the following information shall be disclosed in the
notes to the financial statements that include the period in which the impairment loss is recognized:
a. A description of the facts and circumstances leading to the impairment

b. The amount of the impairment loss and the method of determining the fair value of the associated
reporting unit (whether based on quoted market prices, prices of comparable businesses or
nonprofit activities, a present value or other valuation technique, or a combination thereof)
c. If a recognized impairment loss is an estimate that has not yet been finalized (see paragraphs 350-
20-35-18 through 35-19), that fact and the reasons therefore and, in subsequent periods, the
nature and amount of any significant adjustments made to the initial estimate of the impairment loss.
Pending Content:
Disclosure
350-20-50-2
For each goodwill impairment loss recognized, all of the following information shall be disclosed in the
notes to the financial statements that include the period in which the impairment loss is recognized:
b. The amount of the impairment loss and the method of determining the fair value of the associated
reporting unit (whether based on quoted market prices, prices of comparable businesses or
nonprofit activities, a present value or other valuation technique, or a combination thereof)
c. Subparagraph superseded by Accounting Standards Update No. 2017-04.
350-20-50-3
The quantitative disclosures about significant unobservable inputs used in fair value measurements
categorized within Level 3 of the fair value hierarchy required by paragraph 820-10-50-2(bbb) are not
required for fair value measurements related to the financial accounting and reporting for goodwill
after its initial recognition in a business combination.
4.3.1.1 SEC observations on goodwill impairment analysis and disclosures

The SEC staff frequently asks for supplemental information about a registrant’s impairment analysis, including:
• Details of the goodwill impairment analysis for each reporting unit, including how reporting units are
identified and how assets, liabilities and goodwill are assigned to reporting units
• Sensitivity analyses regarding material assumptions used in testing goodwill for impairment,
including qualitative and quantitative factors, and how changes in those assumptions might affect
the outcome of the goodwill impairment test
• Details of the registrant’s analysis of events that occurred since the latest annual goodwill
impairment assessment and whether those events suggest that it is more likely than not that the fair
value of a reporting unit is less than its carrying amount
• The reconciliation of the aggregate fair values of the reporting units to the registrant’s market
capitalization and justification of the implied control premium, including relevant transactions
reviewed to support the control premium (see section 3.3.1 (before the adoption of ASU 2017-04)
or section 3A.3.1 (after the adoption of ASU 2017-04) for further information on market
capitalization reconciliations)
• The reasons for and the result of any goodwill impairment test, even if no impairment was recognized
• The type of events that could result in a future goodwill impairment

In addition, the SEC staff has asked registrants to provide more robust disclosures in management’s
discussion and analysis (MD&A) about their critical accounting estimates for assessing goodwill for
impairment and the details of any recognized goodwill impairments. The comments have asked for more
discussion of:
• The accounting policies relating to the goodwill impairment tests, including when the quantitative
impairment test is performed, whether the optional qualitative assessment was performed for any
reporting units, how reporting units are identified and aggregated, how goodwill is assigned to
reporting units, and how the implied fair value of goodwill is derived in the second step (if applying
ASC 350 prior to the adoption of ASU 2017-04)
• The facts and circumstances leading to an impairment
• How the fair value of each reporting unit was estimated, including the significant assumptions and
estimates used
• Any reporting unit with a material amount of goodwill whose estimated fair value does not
substantially exceed its carrying amount (i.e., the reporting unit is “at risk” of failing a future
quantitative impairment test)
Registrants should provide robust disclosures that satisfy the requirements of ASC 350-20-50-2. When
the SEC staff believes that the factors resulting in a goodwill impairment have not been satisfactorily
disclosed, the SEC staff frequently requests additional information as to the factors and circumstances
leading to the impairment.
Even if no impairment is identified in a particular reporting period, the SEC staff expects registrants to
provide comprehensive disclosures of their critical accounting estimates in MD&A related to goodwill
impairment testing. The SEC staff frequently issues comments when these disclosure requirements are
not met or the disclosures are not clear and meaningful. At a minimum, the disclosures should include:
• The annual assessment date and a description of when an interim test is required (e.g., whenever
events or circumstances make it more likely than not that an impairment may have occurred, such as a
significant adverse change in the business climate or a decision to sell or dispose of the reporting unit)
• A description of how the estimated fair value of a reporting unit is determined and the significant
assumptions used in that analysis
Although detailed information such as the fair value or carrying amount of reporting units is not required
by US GAAP, the SEC staff believes that meaningful information about the potential for a future goodwill
impairment should be included in MD&A. The SEC staff frequently asks registrants to discuss in MD&A the
possibility of future impairment of goodwill for any reporting unit that may have a material amount of
goodwill “at risk.” Specifically, the SEC staff expects a registrant’s MD&A to disclose:36
• The percentage by which the fair value of each reporting unit exceeds its carrying amount at the date
of the last impairment test
• The amount of goodwill assigned to the reporting unit
• A qualitative discussion of key assumptions that drive the fair value of the reporting unit (i.e., the
SEC staff encourages, but does not require, disclosure of the key numerical assumptions or a
quantitative sensitivity analysis)
36
If a registrant does not have any reporting units that are at risk of failing the quantitative impairment test, that fact should be
disclosed in MD&A.

• A discussion of uncertainties associated with the key assumptions
• A discussion of any potential events or circumstances that could have a negative effect on the
estimated fair value of the reporting unit
A reporting unit may be “at risk” of failing the quantitative impairment test if it had a fair value that is not
substantially in excess of its carrying amount at the assessment date. While no bright-lines exist to
determine whether the fair value was not substantially in excess of the carrying amount and thus a
reporting unit’s goodwill is considered “at risk,” the SEC staff has stated that it expects a registrant to
apply judgment when making those disclosures.
The SEC staff may challenge the timing of a goodwill impairment charge, particularly when the reasons
for the charge also existed in prior periods. The SEC staff also may question whether adequate disclosure
was made in previous filings when a goodwill impairment charge is recorded for a reporting unit that was
not previously disclosed as being “at risk.”
4.3.2 Impairment of intangible assets other than goodwill

Disclosure
350-30-50-3
For each impairment loss recognized related to an intangible asset, all of the following information
shall be disclosed in the notes to financial statements that include the period in which the impairment
loss is recognized:
a. A description of the impaired intangible asset and the facts and circumstances leading to the
impairment
b. The amount of the impairment loss and the method for determining fair value
c. The caption in the income statement or the statement of activities in which the impairment loss is
aggregated
d. If applicable, the segment in which the impaired intangible asset is reported under Topic 280.
350-30-50-3A
A nonpublic entity is not required to disclose the quantitative information about significant
unobservable inputs used in fair value measurements categorized within Level 3 of the fair value
hierarchy required by paragraph 820-10-50-2(bbb) that relate to the financial accounting and
reporting for an indefinite-lived intangible asset after its initial recognition.
4.3.2.1 SEC observations on intangible asset impairment analysis and disclosures

The SEC staff has requested that registrants explain how indefinite-lived intangible assets are tested for
impairment, including the valuation method and significant assumptions used to determine the estimated
fair values of the assets. As with goodwill impairment, the SEC staff has challenged whether impairments
of indefinite-lived intangibles should be recognized when the market capitalization of the registrant or its
operating results (or that of the relevant segment) have declined significantly.

5 Effective date, transition and transition
disclosures
5.1 Effective date for ASU 2017-04

Transition Related to Accounting Standards Updates No. 2017-04, Intangibles — Goodwill and Other
(Topic 350): Simplifying the Test for Goodwill Impairment, No. 2019-10, Financial Instruments —
Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective
Dates, and No. 2021-03, Intangibles — Goodwill and Other (Topic 350): Accounting Alternative
for Evaluating Triggering Events
350-20-65-3
The following represents the transition and effective date information related to Accounting Standards
Updates No. 2017-04, Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment, No. 2019-10, Financial Instruments — Credit Losses (Topic 326), Derivatives and Hedging
(Topic 815), and Leases (Topic 842): Effective Dates, and No. 2021-03, Intangibles — Goodwill and
Other (Topic 350): Accounting Alternative for Evaluating Triggering Events:
a. The pending content that links to this paragraph shall be effective for annual and any interim
impairment tests performed for periods beginning after:
1. December 15, 2019, for public business entities that are U.S. Securities and Exchange
Commission (SEC) filers, excluding entities eligible to be smaller reporting companies as
defined by the SEC. The one-time determination of whether an entity is eligible to be a
smaller reporting company shall be based on an entity’s most recent determination as of
November 15, 2019, in accordance with SEC regulations.
2. Subparagraph superseded by Accounting Standards Update No. 2019-10.
3. December 15, 2022, for all other entities.
b. Early adoption is permitted for interim and annual goodwill impairment tests with a measurement
date on or after January 1, 2017.
c. An entity shall apply the pending content that links to this paragraph prospectively.
d. An entity shall disclose the nature of and reason for the change in accounting principle, including
an explanation of why the newly adopted accounting principle is preferable, in the fiscal period in
which the change in accounting principle is made. An entity that issues interim financial
statements shall provide the required disclosures in the financial statements of both the interim
period of the change and the annual period of the change.
e. Private companies that have adopted the private company accounting alternative for amortizing
goodwill or the private company accounting alternative for a goodwill impairment triggering event
evaluation but have not adopted the private company alternative for subsuming certain intangible
assets into goodwill are allowed, but not required, to adopt this guidance prospectively on or before
the effective date without having to justify preferability of the accounting change. Private
companies that have adopted the private company alternative to subsume certain intangible assets
into goodwill and, thus, also adopted the goodwill alternative are not permitted to adopt this guidance
upon issuance without following the guidance in Topic 250 on accounting changes and error
corrections, including justifying why it is preferable to change their accounting policies.

5 Effective date, transition and transition disclosures
The FASB modified the effective dates of ASU 2017-04 to maintain alignment with the new effective
dates of ASU 2016-13, the credit impairment standard. The FASB made the change as part of ASU
2019-10 in which it deferred the effective dates of the credit impairment standard for all entities except
SEC filers that are not smaller reporting companies. When the FASB originally simplified the goodwill
impairment test through the issuance of ASU 2017-04, it aligned the effective dates with the credit
impairment standard to eliminate the potential double counting of losses for entities with significant
financial instruments that could have resulted from entities applying the new goodwill impairment test
before they adopted the new credit impairment standard.
The guidance included in ASU 2017-04 (discussed in section 3A) has tiered effective dates starting with
annual periods beginning after 15 December 2019 for PBEs that meet the definition of an SEC filer that
are not smaller reporting companies (SRCs). Early adoption is permitted for interim and annual goodwill
impairment tests performed on testing dates on or after 1 January 2017.
Following the adoption of ASU 2017-04, a private company that has adopted the goodwill amortization
accounting alternative but has not adopted the accounting alternative for subsuming certain intangible
assets into goodwill (the intangible assets accounting alternative) is allowed, but not required, to adopt
the guidance in ASU 2017-04 prospectively on or before the effective date without having to perform a
preferability assessment (i.e., justify why it is preferable to change its accounting policy).
However, a private company that has adopted the intangible assets accounting alternative and, thus,
also has adopted the goodwill amortization accounting alternative is required to follow the guidance in
ASC 250 on changing an accounting principle, including performing a preferability assessment. For more
information, refer to section A.2.4.1.
Question 5.1 Can an entity early adopt ASU 2017-04 for its annual goodwill impairment test if it performed one or
more interim impairment tests under ASC 350 (before the adoption of ASU 2017-04)?
Paragraph BC63 of ASU 2017-04 clarifies that an entity should apply the same guidance to an interim
impairment test as the guidance it plans to use for its annual impairment test in the year of adoption.
That is, an entity should not early adopt the guidance for any interim or annual impairment tests
performed within a fiscal year if it was not adopted for the first interim impairment test performed during
that fiscal year. For example, if an entity did not early adopt the guidance for its first quarter goodwill
impairment test, the earliest impairment test for which it could adopt the guidance would be the first
impairment test performed during the next fiscal year.
Question 5.2 If an entity’s reporting unit failed Step 1 but passed Step 2 (which would have resulted in an impairment
under ASU 2017-04) in its most recent impairment test before the adoption of ASU 2017-04, would the
entity have an indicator of impairment for that reporting unit upon adopting ASU 2017-04?
In paragraph BC66 of ASU 2017-04, the FASB noted that if a reporting unit’s carrying amount exceeded
its fair value in the most recent impairment test before adoption (i.e., under Step 1), but the implied fair
value of goodwill exceeded the reporting unit’s carrying amount in Step 2 (thus, no impairment was
recognized), the entity likely would have an impairment indicator for that reporting unit as of the beginning
of the period of adoption of ASU 2017-04 based on the change in how goodwill impairment is measured.
Similarly, if a reporting unit’s carrying amount exceeded its fair value during the most recent impairment
test before adoption and the carrying amount of goodwill exceeded the implied fair value of goodwill
when applying Step 2 and an impairment was recognized, the entity may have an additional impairment
for that reporting unit as of the beginning of the period of adoption.

A Accounting alternatives for
subsequent accounting for goodwill
(updated July 2021)
A.1 Overview and scope

General
350-20-05-4
The guidance in this Subtopic is presented in the following two Subsections:
a. General
b. Accounting Alternatives.
350-20-05-4A
Costs of developing, maintaining, or restoring internally generated goodwill should not be capitalized.
For entities that do not elect the accounting alternative for amortizing goodwill included in the
guidance in the Subsections outlined in paragraph 350-20-05-5A, goodwill that is recognized under
the business combination guidance in Topic 805 and Subtopic 958-805 should not be amortized.
Instead, it should be tested for impairment at least annually in accordance with paragraphs 350-20-
35-28 through 35-32. If the accounting alternative for a goodwill impairment triggering event
evaluation is elected, a goodwill impairment triggering event shall be evaluated in accordance with
paragraphs 350-20-35-83 through 35-86.
Accounting Alternatives
350-20-05-5
The Accounting Alternatives Subsections of this Subtopic provide guidance for the following:
a. An entity within the scope of paragraph 350-20-15-4 that elects the accounting alternative for
amortizing goodwill. If elected, this accounting alternative allows an eligible entity to amortize
goodwill and test that goodwill for impairment upon a triggering event.
b. An entity within the scope of paragraph 350-20-15-4A that elects the accounting alternative for a
goodwill impairment triggering event evaluation. If elected, this accounting alternative allows an eligible
entity to evaluate goodwill impairment triggering events only as of the end of each reporting period.
350-20-05-5A
The accounting alternatives guidance can be found in the following paragraphs:
a. Scope and Scope Exceptions — paragraphs 350-20-15-4 through 15-6
b. Subsequent Measurement — paragraphs 350-20-35-62 through 35-86
Financial reporting developments Intangibles — goodwill and other | A-1

A Accounting alternatives for subsequent accounting for goodwill (updated July 2021)
c. Derecognition — paragraphs 350-20-40-8 through 40-9
d. Other Presentation Matters — paragraphs 350-20-45-4 through 45-7
e. Disclosure — paragraphs 350-20-50-3A through 50-7
f. Implementation Guidance and Illustrations — paragraphs 350-20-55-26 through 55-29.
350-20-05-6
An entity should continue to follow the applicable requirements in Topic 350 for other accounting and
reporting matters related to goodwill that are not addressed in the Accounting Alternatives
Subsections of this Subtopic.

General
350-20-15-3A
Paragraphs 350-20-15-4 through 15-6, 350-20-35-62 through 35- 86, 350-20-40-8 through 40-9,
350-20-45-4 through 45-7, 350-20-50-3A through 50-7, 350-20-55-26 through 55-29, and 323-10-
35-13 provide guidance for an entity electing the accounting alternatives in this Subtopic. See
paragraphs 350-20-65-2 and 350-20-65-4 for transition guidance for private companies and not-for-
profit entities on applying the accounting alternatives in Subtopic 350-20.
350-20-15-4
A private company or not-for-profit entity may make an accounting policy election to apply the
accounting alternative for amortizing goodwill in this Subtopic to the following transactions or activities:
a. Goodwill that an entity recognizes in a business combination in accordance with Subtopic 805-30
or in an acquisition by a not-for-profit entity in accordance with Subtopic 958-805 after it has
been initially recognized and measured
b. Amounts recognized as goodwill in applying the equity method of accounting in accordance with
Topic 323 on investments — equity method and joint ventures, and to the excess reorganization
value recognized by entities that adopt fresh-start reporting in accordance with Topic 852 on
reorganizations.
350-20-15-4A
A private company or not-for-profit entity may make an accounting policy election to apply the
accounting alternative for a goodwill impairment triggering event evaluation to goodwill subsequently
accounted for in accordance with Subtopic 350-20.
350-20-15-5
An entity within the scope of paragraph 350-20-15-4 or paragraph 350-20-15-4A that elects the
accounting alternative for amortizing goodwill or the accounting alternative for goodwill impairment
triggering event evaluation shall apply all of the related subsequent measurement, derecognition,
other presentation matters, and disclosure requirements upon election. An accounting alternative,
once elected, shall be applied to existing goodwill and to all additions to goodwill recognized in future
transactions within the scope of that accounting alternative.
350-20-15-6
An entity that elects either of the accounting alternatives in this Subtopic is not required to elect or
precluded from electing the other alternative.

US GAAP allows private companies and NFPs to make two accounting policy elections (referred to as
accounting alternatives) to simplify their subsequent accounting for goodwill. Unless specified,
references to companies or entities throughout this appendix include private companies and NFPs.
The first accounting alternative allows private companies and NFPs (further discussed in section A.1.1) to
amortize goodwill acquired in a business combination or in an acquisition by an NFP and to use a simplified
one-step impairment test (referred to as the goodwill amortization accounting alternative). The application
of the goodwill amortization accounting alternative is optional, meaning that eligible private companies37
and NFPs38 can continue to follow the guidance discussed in sections 3 (before the adoption of ASU 2017-
04) and 3A (after the adoption of ASU 2017-04).
Once elected, the goodwill amortization accounting alternative applies to all existing goodwill and any
goodwill that is recognized (1) in a business combination under ASC 805 or in an acquisition by an NFP
under ASC 958-805, (2) as a result of applying the equity method of accounting under ASC 323 and (3) as
a result of applying fresh-start accounting under ASC 852. For more information on the recognition and
initial measurement of each of these transactions, see our FRDs, Business combinations; Equity method
investments and joint ventures; and Bankruptcies, liquidations and quasi-reorganizations, respectively. In
addition, entities that elect the goodwill amortization accounting alternative must apply all related
subsequent measurement, derecognition, presentation and disclosure requirements upon election.
The goodwill amortization accounting alternative is very different from PBE US GAAP. The table below
summarizes some of the key differences between the goodwill amortization accounting alternative and PBE
US GAAP, and also provides the section of this Appendix in which the goodwill amortization accounting
alternative is discussed. The table assumes the goodwill triggering event evaluation accounting alternative
is not also elected.
Goodwill amortization accounting

Guidance PBE US GAAP Section
alternative
Amortization Prohibited Amortized on a straight-line basis A.2
over a period of 10 years (or less)
Level of Goodwill is required to be tested at Entities have the option of A.2.2.1
goodwill the reporting unit level performing the impairment test at
impairment the entity level or the reporting unit
test level (accounting policy election)
Frequency of Required at least annually, and more Required only when there is a A.2.2.2
impairment frequently if events and triggering event indicating that the fair
test circumstances indicate that goodwill value of the entity (or reporting unit)
may be impaired may be below its carrying amount
Calculation of Optional qualitative assessment: Optional qualitative assessment: A.2.2.3
goodwill for Evaluate whether it is more likely Evaluate whether it is more likely than
impairment than not that the fair value of a not that the fair value of the entity (or a
reporting unit is less than its carrying reporting unit) is less than its carrying
amount amount
If applicable, two-step impairment If applicable, one-step goodwill A.2.2.4
test is performed at the reporting unit impairment test is performed at the
level39 entity level or the reporting unit level;
the entity’s (or reporting unit’s)
carrying amount, including goodwill, is
compared to its fair value
37
Refer to Appendix G for the definition of a private company from the ASC Master Glossary.
38
Refer to Appendix G for the definition of a not-for-profit entity from the ASC Master Glossary.
39
Following the adoption of ASU 2017-04, the calculation of goodwill for impairment will be a one-step test based on the excess of
the carrying value of a reporting unit to its fair value.

Goodwill amortization accounting

Guidance PBE US GAAP Section
alternative
Any impairment loss (amount by
which the entity‘s or reporting unit’s
carrying amount, including goodwill,
exceeds its fair value) is limited to the
carrying amount of goodwill
(i.e., goodwill cannot be reduced
below zero)
Allocation of No requirement to allocate a goodwill Any goodwill impairment loss is A.2.2.4.1
goodwill impairment loss to a lower unit of allocated to each amortizable unit of
impairment account within a reporting unit goodwill of the entity (or the
loss reporting unit) using either a pro rata
allocation based on relative carrying
amounts or another reasonable and
rational basis
Disposal of a Goodwill is allocated to the business Goodwill is allocated to the business A.2.3.1
business or or nonprofit activity being disposed or nonprofit activity being disposed
nonprofit of based on the relative fair values of of using a reasonable and rational
activity that the business or nonprofit activity approach, which could be relative fair
constitutes a being sold and the portion of the value
portion of a reporting unit that will be retained
reporting unit
Amortization Prohibited Amortized on a straight-line basis A.2.3.2
of equity over 10 years (or less)
method
goodwill
With ASU 2021-03, the FASB provided a second accounting alternative that allows private companies
and NFPs to assess whether triggering events for goodwill impairment under ASC 350-20 have occurred
only as of the end of their annual reporting period or interim reporting period if they report more
frequently (referred to as the goodwill triggering event evaluation accounting alternative).
Once elected, the goodwill triggering event evaluation accounting alternative applies only to goodwill that is
subsequently accounted for in accordance with ASC 350-20. See section A.3 for further information on
how an entity evaluates goodwill for impairment if it elects this accounting alternative. The application of
this accounting alternative is optional, meaning that eligible private companies and NFPs can continue to
follow the goodwill impairment guidance discussed in sections 3 (before the adoption of ASU 2017-04) and
3A (after the adoption of ASU 2017-04).
Additionally, eligible entities can elect either the goodwill amortization accounting alternative or the
goodwill triggering event evaluation accounting alternative, regardless of whether they have elected to
apply the other alternative.
A.1.1 Definition of a private company, a PBE and a not-for-profit entity

Only private companies and NFPs are eligible to elect the goodwill accounting alternatives. Entities that are
considering electing one or both goodwill accounting alternatives should carefully review the definition of a
PBE because it includes several types of entities that would not be considered public under other definitions in
US GAAP. For example, an entity is considered to be a PBE if its financial statements or financial information
is included in another entity’s SEC filing (e.g., an acquired business, significant equity method investee).


Glossary
350-20-20
Not-for-Profit Entity
An entity that possesses the following characteristics, in varying degrees, that distinguish it from a
business entity:
a. Contributions of significant amounts of resources from resource providers who do not expect
commensurate or proportionate pecuniary return
b. Operating purposes other than to provide goods or services at a profit
c. Absence of ownership interests like those of business entities.
Entities that clearly fall outside this definition include the following:
a. All investor-owned entities
b. Entities that provide dividends, lower costs, or other economic benefits directly and
proportionately to their owners, members, or participants, such as mutual insurance entities,
credit unions, farm and rural electric cooperatives, and employee benefit plans.
Private Company
An entity other than a public business entity, a not-for-profit entity, or an employee benefit plan within
the scope of Topics 960 through 965 on plan accounting.
Public Business Entity

A public business entity is a business entity meeting any one of the criteria below. Neither a not-for-
profit entity nor an employee benefit plan is a business entity.
a. It is required by the U.S. Securities and Exchange Commission (SEC) to file or furnish financial
statements, or does file or furnish financial statements (including voluntary filers), with the SEC
(including other entities whose financial statements or financial information are required to be or
are included in a filing).
b. It is required by the Securities Exchange Act of 1934 (the Act), as amended, or rules or
regulations promulgated under the Act, to file or furnish financial statements with a regulatory
agency other than the SEC.
c. It is required to file or furnish financial statements with a foreign or domestic regulatory agency in
preparation for the sale of or for purposes of issuing securities that are not subject to contractual
restrictions on transfer.
d. It has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an
exchange or an over-the-counter market.
e. It has one or more securities that are not subject to contractual restrictions on transfer, and it is
required by law, contract, or regulation to prepare U.S. GAAP financial statements (including
notes) and make them publicly available on a periodic basis (for example, interim or annual
periods). An entity must meet both of these conditions to meet this criterion.
An entity may meet the definition of a public business entity solely because its financial statements or
financial information is included in another entity’s filing with the SEC. In that case, the entity is only a
public business entity for purposes of financial statements that are filed or furnished with the SEC.

Because the definition of a PBE is broader than other definitions of a public company in US GAAP, private
companies should carefully evaluate whether they still meet the definition of a private company and
whether they expect to continue to meet it for the foreseeable future.
For example, if a company meets the definition of a private company (and therefore is currently eligible
to apply the goodwill amortization accounting alternative or the goodwill triggering event evaluation
accounting alternative) but later goes public, it would be required to retrospectively adjust its historical
financial statements to comply with PBE US GAAP. This could be challenging and could affect other aspects
of the financial statements. For example, assume a private company adopts the goodwill amortization
accounting alternative and elects to test goodwill for impairment at the entity level. If the private company
were to later go public and become a PBE, it would be required to retrospectively adjust its financial
statements to reverse the goodwill amortization that was recognized under the goodwill amortization
accounting alternative and test its goodwill for impairment at the reporting unit level. As another example,
if a private company elects the goodwill triggering event evaluation accounting alternative and later
becomes a PBE, it would be required to go back to the date of adoption of the alternative and evaluate
whether a goodwill impairment test would have been triggered as of an earlier date. The entity would
then need to perform goodwill impairment tests as of those interim dates without using hindsight (i.e.,
without considering the occurrence of events or changes in circumstances since those interim dates).40
All NFPs, including NFP conduit bond obligors, are eligible to elect one or both goodwill accounting alternatives.
A.2 Goodwill amortization accounting alternative (updated July 2021)

Accounting Alternative for Amortizing Goodwill
350-20-35-62
The following guidance for goodwill applies to entities within the scope of paragraph 350-20-15-4 that
elect the accounting alternative for amortizing goodwill.
350-20-35-63
Goodwill relating to each business combination, acquisition by a not-for-profit entity, or reorganization
event resulting in fresh-start reporting (amortizable unit of goodwill) shall be amortized on a straight-line basis
over 10 years, or less than 10 years if the entity demonstrates that another useful life is more appropriate.
350-20-35-64
An entity may revise the remaining useful life of goodwill upon the occurrence of events and changes
in circumstances that warrant a revision to the remaining period of amortization. However, the
cumulative amortization period for any amortizable unit of goodwill cannot exceed 10 years. If the
estimate of the remaining useful life of goodwill is revised, the remaining carrying amount of goodwill
shall be amortized prospectively on a straight-line basis over that revised remaining useful life.
A private company or an NFP is required to amortize goodwill on a straight-line basis over 10 years, or less
than 10 years if the entity can demonstrate that another useful life is more appropriate. The PCC decided to
require a straight-line basis of amortization due to the inherent difficulties of predicting the actual pattern in
which goodwill provides benefits to an entity, and the Board decided to extend the same guidance to NFPs.
40
BC31 to 32 of ASU 2021-03.

A.2.1 Determining useful life

Because the goodwill amortization accounting alternative does not require entities to justify their useful life
determination, entities may default to a useful life of 10 years. Private companies and NFPs may elect to
amortize goodwill over a period of less than 10 years if they can demonstrate that a shorter useful life is more
appropriate. However, under no circumstance may a useful life of greater than 10 years be assigned to goodwill.
We believe that the guidance in ASC 350-30-35-2 through 35-3 on determining the useful life of an intangible
asset (discussed further in section 2.1) may be useful in evaluating the useful life of goodwill in circumstances
in which a private company or an NFP believes that it can demonstrate that a useful life of less than 10 years
is more appropriate. The useful life determination is made separately for each amortizable unit of goodwill.
An entity may revise the remaining useful life of goodwill if events or changes in circumstances indicate
that a different useful life is more appropriate. However, the cumulative amortization period for any
amortizable unit of goodwill cannot exceed 10 years. Any revision to the remaining useful life of goodwill
is treated as a change in accounting estimate, which results in the remaining carrying amount of goodwill
being amortized prospectively on a straight-line basis over the revised remaining useful life.
Upon adoption, an entity must assign a useful life to its existing amortizable units of goodwill (e.g., resulting
from each prior business combination, acquisition by an NFP or application of fresh-start accounting) as of the
beginning of the period of adoption. An entity also must begin amortizing the goodwill on a straight-line basis
prospectively from the beginning of the period. Any subsequent additions to goodwill represent separate
amortizable units of goodwill that should be assigned a useful life on an acquisition-by-acquisition basis.
A.2.2 Simplified impairment test

350-20-35-66
Goodwill of an entity (or a reporting unit) shall be tested for impairment if an event occurs or circumstances
change that indicate that the fair value of the entity (or the reporting unit) may be below its carrying
amount (a triggering event). Paragraph 350-20-35-3C(a) through (g) includes examples of those events or
circumstances. Those examples are not all-inclusive, and an entity shall consider other relevant events and
circumstances that affect the fair value or carrying amount of the entity (or of a reporting unit) in
determining whether to perform the goodwill impairment test. For those entities that have elected the
accounting alternative for a goodwill impairment triggering event evaluation in paragraph 350-20-35-84, a
goodwill triggering event evaluation shall be performed only as of the end of each reporting period. If an
entity determines that there are no triggering events, then further testing is unnecessary.
350-20-35-67
Upon the occurrence of a triggering event, an entity may assess qualitative factors to determine
whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of
the entity (or the reporting unit) is less than its carrying amount, including goodwill. Paragraph 350-
20-35-3C(a) through (g) includes examples of those qualitative factors.
350-20-35-70
An entity has an unconditional option to bypass the qualitative assessment described in paragraphs
350-20-35-67 through 35-69 and proceed directly to a quantitative calculation by comparing the
entity’s (or the reporting unit’s) fair value with its carrying amount (see paragraphs 350-20-35-72
through 35-78). An entity may resume performing the qualitative assessment upon the occurrence of
any subsequent triggering events.

Under PBE US GAAP, companies are required to test goodwill for impairment at the reporting unit level
annually, and more frequently if indicators of impairment exist.
Under the goodwill amortization accounting alternative, goodwill is tested for impairment in accordance
with the following flowchart taken from ASC 350-20-55-26 (after the adoption of ASU 2017-04):
Triggering Event1
Has an event occurred or have No
circumstances changed that would
indicate that the fair value of the entity
(or the reporting unit)
may be below its carrying
amount?
Yes
Evaluate relevant events or circumstances to determine whether it is
more likely than not that the fair value of the entity (or the reporting
unit) is less than its carrying amount.2
Is it more likely than not

that the fair value of the No
entity (or the reporting Stop. No goodwill
unit) is less than its impairment recognized.
carrying amount?
Yes
Calculate the fair value of the entity (or the reporting unit) and
compare with its carrying amount, including goodwill.
Is the fair value

of the entity (or the No
reporting unit) less than
its carrying amount?
Yes
Recognize impairment equal
to the difference between
Is the difference the carrying amount of the
between the carrying entity (or the reporting unit)
No
amount of the entity (or the reporting and its fair value,
unit) and its fair value greater than considering the related
the carrying amount income tax effect from any
of goodwill? tax-deductible goodwill,
if applicable, as described in
paragraph 350-20-35-8B.3
Yes
Recognize impairment equal to the

carrying amount of goodwill.
1
Entities that elect to also apply the goodwill triggering event evaluation accounting alternative will evaluate the occurrence of
goodwill impairment triggering events only as of each reporting date. See section A.3.1 for further guidance.

2
An entity has the unconditional option to skip the qualitative assessment and proceed directly to calculating the fair value of the
entity (or reporting unit) and comparing that value with its carrying amount, including goodwill.
3
Prior to the adoption of ASU 2017-04, ASC 350 did not provide specific guidance on how to consider the related income tax
effect from any tax-deductible goodwill for entities that elected to apply the goodwill amortization accounting alternative.
A.2.2.1 Level of impairment test

350-20-35-65
Upon adoption of this accounting alternative, an entity shall make an accounting policy election to test
goodwill for impairment at the entity level or the reporting unit level. An entity that elects to perform
its impairment tests at the reporting unit level shall refer to paragraphs 350-20-35-33 through 35-38
and paragraphs 350-20-55-1 through 55-9 to determine the reporting units of an entity.
350-20-35-75
The guidance in paragraphs 350-20-35-39 through 35-44 shall be considered in assigning acquired
assets (including goodwill) and assumed liabilities to the reporting unit when determining the carrying
amount of a reporting unit.
When it adopts the goodwill amortization accounting alternative, an entity is required to make an
accounting policy election to test goodwill for impairment at either the entity level or the reporting unit
level. If an entity elects to test goodwill at the entity level, it would no longer have to determine its
reporting units.
If an entity elects to test goodwill for impairment at the reporting unit level, it would continue to follow
existing guidance for determining reporting units and assigning assets (including goodwill) and liabilities
to such reporting units.
Regardless of the level at which a private company or an NFP elects to test goodwill for impairment, any
impairment loss must be allocated to each amortizable unit of goodwill. In other words, a private
company or an NFP would be required to track each amortizable unit of goodwill, regardless of the level
at which it tests goodwill for impairment. For more information on allocating an impairment charge to
amortizable units of goodwill, refer to section A.2.2.4.1.
A.2.2.2 Evaluating triggering events

Under the goodwill amortization accounting alternative, goodwill is tested for impairment when events or
circumstances indicate that the fair value of the entity (or the reporting unit) may be below its carrying
amount. This is known as a triggering event. If an entity determines that there are no triggering events,
no impairment test is required. Because goodwill is being amortized under the goodwill amortization
accounting alternative, we expect goodwill impairment tests to be performed less frequently than under
PBE US GAAP, which requires goodwill to be tested at a minimum annually.
The following events and circumstances listed in ASC 350-20-35-3C are examples of triggering events:
• Industry and market considerations (e.g., deterioration in the environment in which the entity operates)

These events and circumstances are examples and not an all-inclusive listing of triggering events. Entities
should consider other relevant events and circumstances that may affect the fair value or carrying amount
of the entity (or reporting unit) when evaluating whether to perform the goodwill impairment test.
While the examples of triggering events are the same as those considered in the qualitative assessment
(discussed further in section A.2.2.3), the nature and extent of the assessments differ. In paragraph
BC23 of ASU 2014-02, the FASB observed that the assessment of triggering events should be similar
with how a company applying PBE US GAAP evaluates goodwill impairment between annual tests. That
is, the triggering event is an event that makes an entity stop and think about a potential impairment.
Conversely, the optional qualitative assessment is part of the entity’s documented goodwill impairment test
requiring the entity to positively assert its conclusion about whether it is more likely than not that goodwill
is impaired based on consideration of all events and circumstances, not just one triggering event.
A.2.2.3 Qualitative assessment

350-20-35-68
Because the examples included in paragraph 350-20-35-3C(a) through (g) are not all-inclusive, an entity
the entity (or of the reporting unit) in determining whether to perform the quantitative goodwill
impairment test. An entity shall consider the extent to which each of the adverse events and
circumstances identified could affect the comparison of its fair value with its carrying amount (or of the
reporting unit’s fair value with the reporting unit’s carrying amount). An entity should place more weight
on the events and circumstances that most affect its fair value or the carrying amount of its net assets
(or the reporting unit’s fair value or the carrying amount of the reporting unit’s net assets). An entity also
should consider positive and mitigating events and circumstances that may affect its determination of
whether it is more likely than not that its fair value is less than its carrying amount (or the fair value of
the reporting unit is less than the carrying amount of the reporting unit). If an entity has a recent fair
value calculation (or recent fair value calculation for the reporting unit), it also should include that
calculation as a factor in its consideration of the difference between the fair value and the carrying
amount in reaching its conclusion about whether to perform the quantitative goodwill impairment test.
350-20-35-69
and circumstances in the context of determining whether it is more likely than not that the fair value of
the entity (or the reporting unit) is less than its carrying amount. None of the individual examples of
events and circumstances included in paragraph 350-20-35-3C(a) through (g) are intended to
represent standalone events or circumstances that necessarily require an entity to perform the
quantitative goodwill impairment test. Also, the existence of positive and mitigating events and
circumstances is not intended to represent a rebuttable presumption that an entity should not perform
the quantitative goodwill impairment test.

350-20-35-71
20-35-3C(a) through (g), an entity determines that it is not more likely than not that the fair value of
the entity (or the reporting unit) is less than its carrying amount, further testing is unnecessary.
350-20-35-72
20-35-3C(a) through (g), an entity determines that it is more likely than not that the fair value of the
entity (or the reporting unit) is less than its carrying amount or if the entity elected to bypass the
qualitative assessment in paragraphs 350-20-35-67 through 35-69, the entity shall determine the fair
value of the entity (or the reporting unit) and compare the fair value of the entity (or the reporting
unit) with its carrying amount, including goodwill. A goodwill impairment loss shall be recognized if the
carrying amount of the entity (or the reporting unit) exceeds its fair value.
ASC 350 provides entities the option to assess qualitative factors to determine whether a goodwill
impairment test is necessary. The qualitative assessment allows entities to assess whether it is more likely
than not (i.e., a likelihood of more than 50%) that the fair value of the entity (or the reporting unit) is less
than its carrying amount. If an entity concludes based on the qualitative assessment that it is more likely
than not that the fair value of the entity (or the reporting unit) is less than its carrying amount, the entity
is required to perform the one-step goodwill impairment test (see section A.2.2.4). If an entity concludes
based on the qualitative assessment that it is not more likely than not that the fair value of the entity (or
the reporting unit) is less than its carrying amount, it has completed its goodwill impairment test.
ASC 350-20-35-3C(a) through (g) provides examples of events and circumstances to evaluate in the
qualitative assessment. Entities should place more weight on those events and circumstances that most
affect the entity’s (or the reporting unit’s) fair value or carrying amount.
An entity has the unconditional option to skip the qualitative assessment and proceed directly to calculating
the fair value of the entity (or reporting unit) and comparing that value with its carrying amount, including
goodwill, to determine whether goodwill is impaired.
For additional considerations when performing a qualitative assessment, refer to sections 3.1.1 through
3.1.1.2.5 (before the adoption of ASU 2017-04) or sections 3A.1.1 through 3A.1.1.2.5 (after the
adoption of ASU 2017-04).
A.2.2.4 Calculation of impairment loss

Accounting Alternative
350-20-35-73
A goodwill impairment loss, if any, shall be measured as the amount by which the carrying amount of
an entity (or a reporting unit) including goodwill exceeds its fair value. A goodwill impairment loss shall
not exceed the entity’s (or the reporting unit’s) carrying amount of goodwill.
Pending Content:
350-20-35-73
A goodwill impairment loss, if any, shall be measured as the amount by which the carrying amount of an
entity (or a reporting unit) including goodwill exceeds its fair value, limited to the total amount of goodwill
of the entity (or allocated to the reporting unit). Additionally, an entity shall consider the income tax

effect from any tax deductible goodwill on the carrying amount of the entity (or the reporting unit), if
applicable, in accordance with paragraph 350-20-35-8B when measuring the goodwill impairment loss.
See Example 2A in paragraph 350-20-55-23A for an illustration.
350-20-35-74
value of the entity (or the reporting unit).
350-20-35-76
For an entity subject to the requirements of Topic 740 on income taxes, when determining the
carrying amount of an entity (or a reporting unit), deferred income taxes shall be included in the
carrying amount of an entity (or the reporting unit), regardless of whether the fair value of the entity
(or the reporting unit) will be determined assuming it would be bought or sold in a taxable or
nontaxable transaction.
350-20-35-77
The goodwill impairment loss, if any, shall be allocated to individual amortizable units of goodwill of the
entity (or the reporting unit) on a pro rata basis using their relative carrying amounts or using another
reasonable and rational basis.
350-20-35-78
new accounting basis, which shall be amortized over the remaining useful life of goodwill. Subsequent
reversal of a previously recognized goodwill impairment loss is prohibited.
A goodwill impairment loss is measured as the excess of the carrying amount (including goodwill) of the
entity (or reporting unit) over its fair value. Any impairment loss is limited to the carrying amount of
goodwill within the entity (or the reporting unit). If there is excess impairment loss over the carrying
amount of goodwill, we believe an entity should evaluate whether that is an indicator that it should test
the long-lived assets of the entity or reporting unit for impairment. Reversal of a goodwill impairment
loss is prohibited.
When determining the carrying amount of the entity (or the reporting unit), an entity is required to include
any deferred income taxes in the carrying amount, regardless of whether the fair value of the entity (or
the reporting unit) is determined assuming a taxable or nontaxable transaction. This is consistent with
the requirements when performing the PBE quantitative impairment test. See section 3A.1.3 for additional
guidance on the consideration of deferred income taxes in determining the carrying amount of a reporting
unit following the adoption of ASU 2017-04.
A.2.2.4.1 Allocating an impairment loss to amortizable units of goodwill

Any goodwill impairment loss should be allocated to the individual amortizable units of goodwill on a pro
rata basis using their relative carrying amounts or using another reasonable or rational basis. The level at
which an entity elects to test goodwill for impairment will determine the amortizable units of goodwill to
which an impairment loss is allocated. Entities that test goodwill for impairment at the entity level will
allocate impairment losses to amortizable units of goodwill of the entity, while entities that test goodwill
for impairment at the reporting unit level will allocate impairment losses to amortizable units of goodwill
of the reporting unit that is impaired. If an entity that elects to test goodwill for impairment at the
reporting unit level calculates an impairment loss that exceeds the carrying amount of that reporting
unit’s goodwill, the impairment loss is limited to the carrying amount of the goodwill in that reporting
unit. It would not be appropriate to allocate the remaining impairment loss to amortizable units of
goodwill of other reporting units.

Illustration A-1: Allocation of goodwill impairment loss among amortizable units of goodwill
Private Co. adopts the goodwill amortization accounting alternative in its calendar year 20X4 financial
statements and elects to test goodwill for impairment at the entity level. At the date of adoption (1
January 20X4), Private Co. determines that it has one amortizable unit of goodwill with a carrying
amount of $240. Private Co. elects to amortize its goodwill over 10 years.
On 1 April 20X5, Private Co. acquires Target in a business combination, resulting in additional goodwill
of $80. Private Co. determines that the goodwill generated through its acquisition of Target represents
a separate amortizable unit of goodwill, also with a useful life of 10 years.
The table below summarizes the balance of Private Co.’s amortizable units of goodwill during its first two
years of adoption of the goodwill amortization accounting alternative (i.e., through 31 December 20X5):
Amortizable units of goodwill: Legacy Target Total
Goodwill balance 1 January 20X4 $ 240 $ 240
20X4 amortization (24) (24)
Goodwill balance 31 December 20X4 $ 216 $ 216
Acquisition of Target on 1 April 20X5 80 80
20X5 amortization (24) (6)a (30)
Goodwill balance 31 December 20X5 $ 192 $ 74 $ 266
a
Calculated as follows: ($80 / 10) * 9/12
On 1 July 20X6, Private Co. identifies a triggering event that indicates that the fair value of the entity
may be below its carrying amount. Private Co. decides to skip the qualitative assessment and proceeds
directly to the quantitative impairment test.
Private Co. adjusts the carrying amount of each amortizable unit of goodwill by the amortization
expense recognized for the first six months of the year (prior to the identification of the triggering
event that resulted in the impairment test being performed on 1 July).
Legacy Target Total
Goodwill balance 31 December 20X5 $ 192 $ 74 $ 266
20X6 amortization (first six months) (12)b (4)c (16)
Goodwill balance 1 July 20X6 $ 180 $ 70 $ 250
b
c
Private Co. then performs its quantitative impairment test and determines that the carrying amount of
the entity exceeds its fair value by $30.
Analysis
Private Co. must allocate the goodwill impairment loss of $30 to its amortizable units of goodwill.
Private Co. has adopted a policy of allocating a goodwill impairment loss to its amortizable units of
goodwill on a pro rata basis using their relative carrying amounts. Accordingly, of the goodwill impairment
loss, $22 ($180 / $250 * $30) would be allocated to the Legacy amortizable unit of goodwill and
$8 ($70 / $250 * $30) would be allocated to the Target amortizable unit of goodwill, as follows:
Legacy Target Total
Impairment 1 July 20X6 (22) (8) (30)
Private Co. would continue to amortize the new goodwill balances over their remaining useful lives.
Accordingly, Private Co. would amortize the Legacy goodwill balance of $158 over 7.5 years
(i.e., through 31 December 20Y3) and would amortize the Target goodwill balance of $62 over
8.75 years (i.e., through 31 March 20Y5).

A.2.2.5 Carrying amount of entity or reporting unit is zero or negative

The goodwill amortization accounting alternative does not specifically address how to test impairment
when the carrying amount of the entity (or the reporting unit) is zero or negative. Some believe that the
guidance in ASC 350-20-05-6, which requires an entity to continue to follow the requirements in
ASC 350 for anything not specifically addressed in the goodwill amortization accounting alternative,
would apply to such circumstances. This would result in the entity performing Step 2 of the goodwill
impairment test prior to the adoption of ASU 2017-04.
However, we believe that there is no requirement to apply Step 2 in these situations. This is based on the
fact that the goodwill amortization accounting alternative requires an entity to measure an impairment
loss as the amount by which the carrying amount of an entity (or a reporting unit) exceeds its fair value.
When the carrying amount of an entity (or a reporting unit) is zero or negative, the impairment calculation
under the goodwill amortization accounting alternative likely would not result in an impairment loss, which
is consistent with the guidance in ASC 350 following the adoption of ASU 2017-04.
A.2.2.6 Goodwill impairment test in conjunction with another asset (or asset group)
350-20-35-79
If goodwill and another asset (or asset group) of the entity (or the reporting unit) are tested for
impairment at the same time, the other asset (or asset group) shall be tested for impairment before
goodwill. For example, if a significant asset group is to be tested for impairment under the Impairment
or Disposal of Long-Lived Assets Subsections of Subtopic 360-10 on property, plant, and equipment
(thus potentially requiring a goodwill impairment test), the impairment test for the significant asset
group would be performed before the goodwill impairment test. If the asset group is impaired, the
impairment loss would be recognized prior to goodwill being tested for impairment.
350-20-35-80
The requirement in the preceding paragraph applies to all assets that are tested for impairment, not
just those included in the scope of the Impairment or Disposal of Long-Lived Assets Subsections of
Subtopic 360-10.
entity (or the reporting unit) as the measure of impairment, ASC 350-20 requires that if an impairment
test of goodwill and any other asset is required at the same time, impairment tests of all other assets
(e.g., inventory, long-lived assets) should be completed and reflected in the carrying amount of the entity
(or the reporting unit) prior to the completion of the goodwill impairment test. For example, if an
impairment test under ASC 360-10 is being completed for a significant asset group, the impairment test
for the significant asset group should be completed before the goodwill impairment test. If the asset
group is impaired, the carrying amount of the entity (or the reporting unit) would reflect the amount of
the impairment loss prior to goodwill being tested for impairment.
When a disposal group is held for sale, the order of impairment testing differs. Refer to sections 2.3.1.4
and 4.2.3.2 of our FRD, Impairment or disposal of long-lived assets.

A.2.3 Other considerations

A.2.3.1 Disposal of a portion of an entity or a reporting unit
Derecognition
350-20-40-8
350-20-40-9
When a portion of an entity (or a reporting unit) that constitutes a business or nonprofit activity is to
be disposed of, goodwill associated with that business or nonprofit activity shall be included in the
carrying amount of the business or nonprofit activity in determining the gain or loss on disposal. An
entity shall use a reasonable and rational approach to determine the amount of goodwill associated
with the business or nonprofit activity to be disposed of.
When some but not all of an entity (or a reporting unit) that constitutes a business or nonprofit activity is
disposed of, some of the goodwill of the entity (or the reporting unit) should be included in the carrying
amount of the business or nonprofit activity when determining the gain or loss on disposal. No goodwill
would be assigned to a portion of a reporting unit being disposed of if it does not meet the definition of a
business or nonprofit activity. Section 2.1.3 of our FRD, Business combinations, provides guidance in
determining whether a group of assets constitutes a business under ASC 805.
Refer to sections 2.3.1.4 and 4.2.3.2 of our FRD, Impairment or disposal of long-lived assets, for
discussion of impairment testing when a disposal group is held for sale.
activity, entities should use a reasonable and rational approach to assign goodwill to the business or
nonprofit activity being disposed of. Generally, the FASB considers the relative fair value approach to be
reasonable and rational. However, other approaches, such as using relative carrying amount, may also
be reasonable and rational. Refer to section 3.14 (before the adoption of ASU 2017-04) or section 3A.14
(after the adoption of ASU 2017-04) for more information on the relative fair value approach.
A.2.3.2 Equity method goodwill

350-20-35-81
323-10-35-13 (equity method goodwill) shall be amortized on a straight-line basis over 10 years, or
less than 10 years if the entity demonstrates that another useful life is more appropriate.
350-20-35-82
Subtopic. Equity method investments shall continue to be reviewed for impairment in accordance
with paragraph 323-10-35-32.

investee were a consolidated subsidiary. The portion of the difference between the cost of the investment
and the proportional fair value of the assets and liabilities of the investee is commonly referred to as
“equity method goodwill.” An entity applying the goodwill amortization accounting alternative amortizes
any equity method goodwill on a straight-line basis over 10 years, or less than 10 years if it can
demonstrate that another useful life is more appropriate.
Unlike goodwill arising from a business combination, an acquisition by an NFP or the application of fresh-
start accounting, equity method goodwill is not tested for impairment under the goodwill amortization
accounting alternative. Instead, equity method goodwill is tested for impairment under the guidance of
ASC 323-10-35-32. Refer to section 6.8 of our FRD, Equity method investments and joint ventures, for
discussion of testing for other-than-temporary impairment of an equity method investment.
A.2.3.3 Income taxes

The guidance in the goodwill amortization accounting alternative does not address income tax accounting,
so entities that elect to use it must continue to apply the unique and complicated income tax accounting
requirements related to goodwill. Entities that elect to apply the goodwill amortization accounting alternative
may find that their income tax accounting for goodwill amortization and impairment is more complicated.
Adoption of the goodwill amortization accounting alternative also may have an effect on preexisting valuation
allowances on deferred tax assets. Refer to section 11.3 in our FRD, Income taxes, for further discussion.
A.2.4 Transition, presentation and disclosure

A.2.4.1 Transition requirements
Transition and Open Effective Date Information
General
Transition Related to Accounting Standards Updates No. 2014-02, Intangibles — Goodwill and
Other (Topic 350): Accounting for Goodwill, No. 2019-06, Intangibles — Goodwill and Other
(Topic 350), Business Combinations (Topic 805), and Not-for-Profit Entities (Topic 958):
Extending the Private Company Accounting Alternatives on Goodwill and Certain Identifiable
Intangible Assets to Not-for-Profit Entities, and No. 2021-03, Intangibles — Goodwill and Other
(Topic 350): Accounting Alternative for Evaluating Triggering Events
350-20-65-2
The following represents the transition information related to Accounting Standards Update No. 2014-02,
Intangibles — Goodwill and Other (Topic 350): Accounting for Goodwill, No. 2019-06, Intangibles — Goodwill and
Other (Topic 350), Business Combinations (Topic 805), and Not-for-Profit Entities (Topic 958): Extending the
Private Company Accounting Alternatives on Goodwill and Certain Identifiable Intangible Assets to Not-for-Profit
Entities, and No. 2021-03, Intangibles — Goodwill and Other (Topic 350): Accounting Alternative for
Evaluating Triggering Events, referenced in paragraph 350-20-15-3A:
a. Upon adoption of the guidance for the accounting alternative for amortizing goodwill in the
Accounting Alternatives Subsections of this Subtopic and the guidance in paragraph 323-10-35-13,
that guidance shall be effective prospectively for new goodwill recognized after the adoption of that
guidance. For existing goodwill, that guidance shall be effective as of the beginning of the first fiscal
year in which the accounting alternative is adopted.

b. Goodwill existing as of the beginning of the period of adoption shall be amortized prospectively on
a straight-line basis over 10 years, or less than 10 years if an entity demonstrates that another
useful life is more appropriate.
c. Subparagraph superseded by Accounting Standards Update No. 2016-03.
d. Upon adoption of the accounting alternative for amortizing goodwill, an entity shall make an
accounting policy election to test goodwill for impairment at either the entity level or the
e. A private company or not-for-profit entity that makes an accounting policy election to apply the
accounting alternative for amortizing goodwill in the Accounting Alternatives Subsections of this
Subtopic for the first time need not justify that the use of the accounting alternative is preferable as
described in paragraph 250-10-45-2.
Transition Related to Accounting Standards Updates No. 2017-04, Intangibles — Goodwill and
Other (Topic 350): Simplifying the Test for Goodwill Impairment, No. 2019-10, Financial
Instruments — Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases
(Topic 842): Effective Dates, and No. 2021-03, Intangibles — Goodwill and Other (Topic 350):
Accounting Alternative for Evaluating Triggering Events
350-20-65-3e
Private companies that have adopted the private company accounting alternative for amortizing
goodwill or the private company accounting alternative for a goodwill impairment triggering event
evaluation but have not adopted the private company alternative for subsuming certain intangible
assets into goodwill are allowed, but not required, to adopt this guidance prospectively on or before
the effective date without having to justify preferability of the accounting change. Private companies
that have adopted the private company alternative to subsume certain intangible assets into goodwill
and, thus, also adopted the goodwill alternative are not permitted to adopt this guidance upon
issuance without following the guidance in Topic 250 on accounting changes and error corrections,
including justifying why it is preferable to change their accounting policies.
The goodwill amortization accounting alternative should be applied prospectively to new goodwill that is
recognized after the alternative is adopted. For existing goodwill, the goodwill amortization accounting
alternative should be applied as of the beginning of the first annual reporting period in which the goodwill
amortization accounting alternative is adopted.
Goodwill existing as of the beginning of the period of adoption should be amortized prospectively on a
straight-line basis over 10 years, or less than 10 years if the entity can demonstrate that another useful
life is more appropriate (see section A.2 for further information). The Board provided this practical
expedient to existing goodwill because of the challenges many entities would face when determining the
remaining useful life and the burden it would be to go back and segregate the individual amortizable units
of goodwill. Because PBE US GAAP requires goodwill to be tracked only at the reporting unit level,
entities may not have access to goodwill for each individual acquisition and the related acquisition dates
to determine the remaining amortization period.
As discussed further in section A.2.2.1, when an entity adopts the goodwill amortization accounting
alternative, it must make a policy election to test goodwill for impairment at either the entity level or the

A private company or an NFP that makes an accounting policy election to apply the guidance in the alternative
for the first time may forgo a preferability assessment (i.e., the entity does not need to justify that the
use of the goodwill amortization accounting alternative is preferable as described in ASC 250-10-45-2).
However, any change in accounting policy after an entity initially elects the alternative will require a
preferability assessment. Refer to our FRD, Accounting changes and error corrections, for further discussion
on preferability assessments.
A private company that has adopted the goodwill amortization accounting alternative or the goodwill
triggering event evaluation accounting alternative but has not adopted the accounting alternative for
subsuming certain intangible assets into goodwill is allowed, but not required, to adopt the guidance in
ASU 2017-04 prospectively on or before the effective date without having to perform a preferability
assessment (i.e., justify why it is preferable to change its accounting policy).
A private company that has adopted the accounting alternative to subsume certain intangible assets into
goodwill and, thus, also has adopted the goodwill amortization accounting alternative, is required to follow the
guidance in ASC 250 on changing an accounting principle, including performing a preferability assessment.
A.2.4.2 Financial statement presentation

350-20-45-4
350-20-45-5
The aggregate amount of goodwill net of accumulated amortization and impairment shall be presented
as a separate line item in the statement of financial position.
350-20-45-6
The amortization and aggregate amount of impairment of goodwill shall be presented in income
statement or statement of activities line items within continuing operations (or similar caption) unless
the amortization or a goodwill impairment loss is associated with a discontinued operation.
350-20-45-7
The amortization and impairment of goodwill associated with a discontinued operation shall be
included (on a net-of-tax basis) within the results of discontinued operations.
ASC 350 requires that the aggregate amount of goodwill (net of accumulated amortization and any
impairment) be presented as a separate line item in the balance sheet.
Goodwill amortization and impairment losses are required to be presented in the income statement before
the subtotal “income from continuing operations” (or similar caption) unless the amortization or a goodwill
impairment loss is associated with a discontinued operation. The amortization and impairment of goodwill
associated with a discontinued operation should be included within the results of discontinued operations.
Any portion of goodwill assigned to a business or nonprofit activity that has been disposed of (as
discussed in section A.2.3.1) should be recognized as part of the gain or loss on disposal of those assets
and not with other goodwill impairment losses.

A.2.4.3 Disclosure requirements

Disclosure
350-20-50-3A
The information in paragraphs 350-20-50-4 through 50-7 shall be disclosed in the notes to financial
statements for any entity within the scope of paragraph 350-20-15-4 that elects the accounting
alternative for amortizing goodwill.
350-20-50-4
The following information shall be disclosed in the notes to financial statements for any additions to
goodwill in each period for which a statement of financial position is presented:
a. The amount assigned to goodwill in total and by major business combination, by major acquisition
by a not-for-profit entity, or by reorganization event resulting in fresh-start reporting
b. The weighted-average amortization period in total and the amortization period by major business
combination, by major acquisition by a not-for-profit entity, or by reorganization event resulting
in fresh-start reporting.
350-20-50-5
The following information shall be disclosed in the financial statements or the notes to financial
statements for each period for which a statement of financial position is presented:
a. The gross carrying amounts of goodwill, accumulated amortization, and accumulated impairment loss
b. The aggregate amortization expense for the period
c. Goodwill included in a disposal group classified as held for sale in accordance with paragraph
360-10-45-9 and goodwill derecognized during the period without having previously been
reported in a disposal group classified as held for sale.
350-20-50-6
For each goodwill impairment loss recognized, the following information shall be disclosed in the notes
to financial statements that include the period in which the impairment loss is recognized:
b. The amount of the impairment loss and the method of determining the fair value of the entity or
the reporting unit (whether based on prices of comparable businesses or nonprofit activities, a
present value or other valuation technique, or a combination of those methods)
c. The caption in the income statement or statement of activities in which the impairment loss is
included
d. The method of allocating the impairment loss to the individual amortizable units of goodwill.
350-20-50-7
The quantitative disclosures about significant unobservable inputs used in fair value measurements
categorized within Level 3 of the fair value hierarchy required by paragraph 820-10-50-2(bbb) are not
required for fair value measurements related to the financial accounting and reporting for goodwill
after its initial recognition in a business combination or an acquisition by not-for-profit entity.

An entity must disclose that it has adopted the goodwill amortization accounting alternative in the period
of adoption. Any additions to goodwill should be disclosed in the notes to the financial statements to
provide the total amount assigned to goodwill and the amount assigned to goodwill by major business
combination, major acquisition by an NFP or reorganization event. Similar to disclosures required in the
period of acquisition for an acquired intangible asset (as discussed in section 4.2.2.1), entities must disclose
the weighted average amortization period for both the total amount of goodwill and for each major
business combination, major acquisition by an NFP or reorganization event.
A.3 Goodwill triggering event evaluation accounting alternative (added July 2021)
Accounting Alternative for a Goodwill Impairment Triggering Event Evaluation
350-20-35-83
The following guidance for goodwill applies to entities within the scope of paragraph 350-20-15-4A
that elect the accounting alternative for a goodwill impairment triggering event evaluation.
350-20-35-84
An entity may elect to perform its goodwill impairment triggering event evaluation only as of the end
of each reporting period, whether the reporting period is an interim or annual period. That is, the
entity would not evaluate goodwill impairment triggering events and measure any related impairment
during the reporting period. An entity electing the accounting alternative shall assess whether events
or circumstances have occurred that would require an entity to test goodwill for impairment as follows:
a. For an entity that has elected the accounting alternative for amortizing goodwill, the entity’s
evaluation of a triggering event, as described in paragraph 350-20-35-66, shall be performed
only as of each reporting date.
b. For an entity that has not elected the accounting alternative for amortizing goodwill:
1. If the entity performs its annual goodwill impairment test as of the end of the reporting
period, the entity shall not evaluate its goodwill for impairment during the reporting period
as described in paragraph 350-20-35-30.
2. If the entity performs its annual goodwill impairment test on a date other than the end of the
reporting period (in accordance with paragraph 350-20-35-28), the entity’s evaluation of
impairment between annual goodwill impairment tests (as described in paragraph 350-20-
35-30) shall be performed only as of the end of a reporting period.
Under the goodwill triggering event evaluation accounting alternative, private companies and NFPs are
not required to monitor triggering events (i.e., events or circumstances that indicate that goodwill may
be impaired) between reporting dates. Instead, entities that elect the alternative will assess whether
events or changes in circumstances indicate that goodwill may be impaired only as of the end of their
interim or annual reporting periods.

The following flowchart illustrates when an entity evaluates goodwill for impairment if it elects this alternative:
Has the entity elected

Yes Evaluate the occurrence of goodwill
the accounting
impairment triggering events as of
alternative for
each reporting date.
amortizing goodwill?
No
Perform annual impairment test as

Does the entity of the selected date (accounting
perform its annual No policy election) and evaluate the
impairment test as occurrence of goodwill impairment
of the end of a triggering events as of each
reporting period? reporting date.
Yes
Perform annual impairment test as

of the end of the reporting period
and evaluate the occurrence of
goodwill impairment triggering
events as of each additional
reporting date.
Private companies and NFPs can elect this alternative, regardless of whether they have elected to apply the
goodwill amortization accounting alternative.
However, entities that have not elected the goodwill amortization accounting alternative and perform
their annual test as of a date other than the end of a reporting period (e.g., 1 October for a year ending
31 December) will still be required to monitor events and circumstances as of each reporting date to
determine whether an additional goodwill impairment test is required. Entities that want to align their
annual impairment test date with their annual reporting date are required to follow the guidance in ASC
250 on making a voluntary accounting change.
A.3.1 Determining reporting date (added July 2021)

While the guidance states that private companies and NFPs that elect the accounting alternative are
required to evaluate goodwill for impairment only as of their annual reporting date or interim reporting
date if they report more frequently, the guidance does not define the term “reporting date.” The
guidance also does not clarify the nature and composition of interim financial information for which an
impairment evaluation is required or describe how an entity should determine whether such interim
information complies with US GAAP. Therefore, determining whether an entity that elects the accounting
alternative and reports financial information to users on an interim basis must evaluate goodwill
impairment triggering events as of that interim date may be challenging.

The Board decided to include all private companies and NFPs in the scope of the alternative, regardless
of the frequency of their reporting, because it acknowledged that many entities provide users, such as
lenders, regulators and investors, with financial information that indicates that it complies with US GAAP
more frequently than annually.41 The Board also decided not to define the term “US GAAP-compliant
financial information” because it concluded that entities should already be applying the provisions of ASC
350-20 anytime they report financial information that complies with US GAAP.42 The Board intended the
accounting alternative to affect only the timing of an entity’s evaluation of the occurrence of goodwill
impairment triggering events, not an entity’s understanding of when it reports financial information.43
An entity that elects the accounting alternative and provides users with interim financial information will
need to carefully consider whether that information is US GAAP-compliant and thus creates a reporting
date. If a reporting date is created, the entity will need to evaluate whether events or circumstances
indicate that a goodwill impairment test should be performed.
The nature of the events and circumstances an entity evaluates under this accounting alternative are the
same the entity would evaluate if it were applying the goodwill amortization accounting alternative. See
section A.2.2.2 for further guidance, including examples of possible triggering events.
A.3.2 Other considerations (added July 2021)

350-20-35-85
An entity electing this accounting alternative shall apply it only to goodwill evaluated in accordance
with this Subtopic. This accounting alternative does not change the following:
a. The requirement to assess other assets for impairment (for example, long-lived assets and
indefinite-lived intangibles) under existing guidance. If the impairment test related to other assets
would have resulted in a goodwill impairment triggering event, an entity electing this accounting
alternative should consider the results of an impairment test related to other assets in connection
with its goodwill impairment test only as of its annual goodwill impairment testing date and the
reporting date, whether that date is an interim or annual reporting date, as applicable.
b. The requirements to test the remaining goodwill for impairment if only a portion of goodwill is allocated
to a business or nonprofit activity to be disposed of in accordance with paragraph 350-20-40-7.
Entities that elect the goodwill triggering event evaluation accounting alternative will still need to
evaluate whether indicators of impairment exist throughout the reporting period for other assets they
are required to evaluate for impairment, such as long-lived assets and indefinite-lived intangible assets.
The Board decided not to extend the alternative to other assets required to be evaluated for impairment
because the Board said users of private company and NFP financial statements find information about
long-lived assets and indefinite-lived intangible assets to be more relevant than information about goodwill,
and it’s less costly for preparers to determine the carrying amount and fair value of these other assets.
41
BC28 of ASU 2021-03.
42
BC29 of ASU 2021-03.
43
Ibid.

When indicators exist that require an entity to test other assets for impairment throughout the reporting
period and those indicators also affect goodwill, the entity should consider whether those impairment
indicators are still present at the next applicable goodwill impairment testing date.
When a business or nonprofit activity is disposed of and a portion of goodwill is allocated to that disposal,
entities that apply the accounting alternative must still test any remaining goodwill for impairment, even
though recognition of the disposal group may occur between reporting dates. Refer to section 3.14
(before the adoption of ASU 2017-04) or section 3A.14 (after the adoption of ASU 2017-04) for more
information on allocating goodwill to the disposal of a business.
A.3.3 Effective date, transition and disclosure (added July 2021)

350-20-35-86
An entity shall not apply this guidance retroactively to interim periods for which annual financial
statements have already been issued.
Disclosure
350-20-50-3B
An entity within the scope of paragraph 350-20-15-4A that elects the accounting alternative for a
goodwill impairment triggering event evaluation shall disclose its use of the alternative as a significant
accounting policy in accordance with paragraph 235-10-50-1.
Transition Related to Accounting Standards Update No. 2021-03, Intangibles — Goodwill and Other
(Topic 350): Accounting Alternative for Evaluating Triggering Events
350-20-65-4
The following represents the transition and effective date information related to Accounting Standards
Update No. 2021-03, Intangibles—Goodwill and Other (Topic 350): Accounting Alternative for
Evaluating Triggering Events:
a. The pending content that links to this paragraph shall be effective prospectively for fiscal years
beginning after December 15, 2019. Early adoption is permitted for both interim and annual financial
statements that have not yet been issued or made available for issuance as of March 30, 2021. A
private company or not-for-profit entity that adopts the pending content that links to this paragraph
shall apply it as of the beginning of the interim or annual period for financial statements that have not
yet been issued or made available for issuance in the year of adoption. A private company or not-for-
profit entity shall not retroactively adopt the pending content that links to this paragraph as of the
beginning of an annual period for which interim-period financial statements have already been issued
in the year of adoption.
b. For a private company or not-for-profit entity that adopts the pending content that links to this
paragraph after its original effective date, that pending content shall be applied prospectively as of the
beginning of the first reporting period in which the accounting alternative is adopted.
c. A private company or not-for-profit entity that makes an accounting policy election to apply the
pending content that links to this paragraph for the first time need not justify that the use of the
accounting alternative is preferable as described in paragraph 250-10-45-2.

The goodwill triggering event evaluation accounting alternative is applied prospectively and is effective
for fiscal years beginning after 15 December 2019. Entities may elect to apply it in both interim and
annual financial statements that were not issued or made available for issuance as of 30 March 2021. An
entity is not permitted to retroactively apply the alternative to interim financial statements already issued in
the year of adoption.
An entity that elects the alternative and increases the frequency of its reporting (e.g., by issuing interim
financial statements rather than just annual financial statements) will not apply the alternative retroactively
to interim periods for which annual financial statements have already been issued and thus would not
evaluate whether triggering events for goodwill impairment have occurred as of those interim reporting
dates. For example, assume a calendar year-end company that elects the accounting alternative only
prepares US GAAP financial statements on an annual basis. In February 2022, the entity issues its financial
statements for the 12 months ended 31 December 2021. The entity subsequently enters into a debt
arrangement with a bank that requires it to provide the lender with quarterly financial statements prepared
in accordance with US GAAP beginning with the three months ended 31 March 2022. The entity would not
reevaluate whether goodwill triggering events existed at 31 March 2021 for purposes of preparing the
comparative set of quarterly financial statements because the entity has already issued its 2021 annual
financial statements.
An entity must disclose that it has adopted the goodwill triggering event evaluation accounting
alternative in the period of adoption. Entities can adopt the alternative prospectively after the effective
date without assessing preferability under ASC 250.

B Examples — applying the qualitative
impairment assessments for goodwill
and indefinite-lived intangible assets
B.1 Goodwill
B.1.1 Background information
The following example illustrates how the qualitative assessment could be applied to the reporting units
of a hypothetical entity (Company X).
Company X, an SEC registrant, has three reporting units (RU 1, RU 2, and RU 3) that manufacture and
distribute clothing: RU 1 specializes in women’s sportswear, RU 2 specializes in women’s casual wear, and
RU 3 specializes in men’s sportswear. Company X currently sells its products to regional and national
retailers in the United States.
Each of Company X’s reporting units has a goodwill balance resulting from the acquisition of a competitor
five years ago. Company X is a calendar year-end company and uses 1 October as its annual impairment
assessment date for all of its reporting units. Company X has performed the quantitative impairment test
(i.e., determined the fair value of its reporting units) in every year since initial recognition. The last such
test was performed as of 1 October 20X1. Company X has never previously recorded a goodwill
impairment charge.
The primary valuation method used to perform the prior quantitative impairment tests for each reporting
unit has been the discounted cash flow (DCF) method. Company X also supplements its DCF analysis with
implied market multiples from relevant guideline transactions that have taken place since the most recent
impairment testing date.
In 20X2, Company X implemented an impairment testing policy that includes the qualitative assessment.
Company X identified the drivers of fair value for each of its reporting units. Company X then evaluated
whether those drivers had been affected by events and circumstances that were positive, negative or
neutral (indicated by a plus symbol, minus symbol or a zero, respectively). In doing so, Company X based
its analysis on the specific facts and circumstances applicable to its reporting units, designing its
assessment to address the perceived sensitivity of each reporting unit to changes in fair value. Based on
its facts and circumstances, Company X used its judgment to assign a weight of high, medium or low
based on the estimated effect on fair value, as follows:
• High (three symbols) — estimated to have a greater than 10% effect on fair value
• Medium (two symbols) — estimated to have a 5% to 10% effect on fair value
• Low (one symbol) — estimated to have a less than 5% effect on fair value
After identifying and assigning weight to the events and circumstances that most affect the fair value of
its reporting units, Company X’s policy as outlined below then includes an analysis of all factors in their
totality to determine whether they support a conclusion that it is not more likely than not that a reporting
unit’s fair value is less than its carrying amount.
Financial reporting developments Intangibles — goodwill and other | B-1

B Examples — applying the qualitative impairment assessments for goodwill and indefinite-lived intangible assets
B.1.2 Determine the starting point

The following provides additional information about the quantitative impairment test performed as of 1
October 20X1 for each reporting unit.
Fair Carrying Excess fair Excess fair

value amount value ($) value (%)
RU 1 (women’s sportswear) $ 210,000 $ 140,000 $ 70,000 50%
RU 2 (women’s casual wear) 105,000 100,000 5,000 5%
RU 3 (men’s sportswear) 103,500 90,000 13,500 15%
Company X determined that the following relevant events and circumstances have occurred since the
last impairment test that could affect the fair values of all three reporting units:
• The general macroeconomic trends, as indicated by the gross domestic product (GDP), show that the
US economy’s growth is lower than expected. The GDP growth rate for 20X2 is 2% as compared to
the expected growth rate of 3%.
• The interest rate environment became riskier, resulting in slightly higher interest rates that will
affect the cost of borrowing.
• Company X’s industry stock index increased 7% in the current year.
• Company X’s stock price and market capitalization remained relatively flat over the past year, while
the average for Company X’s guideline companies decreased slightly (approximately 1%). Company
X’s market capitalization exceeded its carrying amount by approximately 25% at 1 October 20X2.
• The prospective 20X2 financial information used in the prior year quantitative impairment tests for
RU 1 and RU 3 was largely in line with actual 20X2 results through 30 September. Company X
historically has had strong forecasting processes, with actual results typically falling within 5% of
forecasted results.
• Company X’s 20X2 earnings per share (EPS) through 30 September are above forecast at $2.35 as
compared to $2.33. Prior year EPS was $2.30.
• Company X’s 20X2 revenues through 30 September are slightly above forecast, primarily due to a
shift in marketing and advertising efforts to the women’s and men’s sportswear lines.
• Sales growth for both the men’s and women’s sportswear was above forecasted growth of 2%, with
growth of 7% and 5%, respectively. In addition to the shift in marketing focus, the men’s sportswear
business benefited from decreased competition in the current year due to a fire at a key competitor’s
warehouse.
• These increases were offset by lower than expected women’s casual wear sales (18% below
forecast), primarily due to the shift in consumer focus to sportswear.

The table below summarizes how Company X considered its starting point for applying the qualitative
assessment to each of its reporting units, using the weighting described above.
Determine the starting point

RU 1 RU 2 RU 3
(women’s sportswear) (women’s casual wear) (men’s sportswear)
Excess fair value +++ + ++

Macroeconomic conditions - - -
Industry-specific conditions + + +
Company-specific conditions + --- +
Based on Company X’s preliminary analysis of the starting point for each of its reporting units, it decided to
use the qualitative assessment for RU 1 and RU 3 to determine whether it is more likely than not that the
fair value of the reporting unit is less than its carrying amount. This was based on the strong excess fair
value in the 20X1 analysis and positive industry and company-specific events and circumstances in 20X2.
However, given the small excess fair value of RU 2 and the uncertainty of the negative evidence
(e.g., Company X’s decision to focus marketing efforts on sportswear over casual wear and RU 2’s actual
sales being 18% below forecast), Company X decided to bypass the qualitative assessment and proceed
directly to determining the fair value of this reporting unit.
B.1.3 Identify the most relevant drivers of fair value

Company X performed its assessment of the most relevant drivers of fair value for its women’s and men’s
sportswear reporting units (RU 1 and RU 3, respectively) by first looking at the method used to
determine fair value for each reporting unit. The primary valuation method used to determine the fair
value of RU 1 and RU 3 has been a DCF method. Under this method, Company X measures the fair value
of its reporting units by estimating future cash flows for a five-year period, estimating a terminal value at
the end of the five-year period and applying a discount rate to equate the cash flows (including the
terminal value) to a single present value.
Based on its review of the method for determining fair value and other available information, Company X
identified the following as the key assumptions used to determine the fair value for RU 1 and RU 3:
Most relevant drivers of fair value

Primary method for
Reporting unit determining fair value Relevant drivers of fair value
RU 1 (women’s sportswear) DCF method Projected cash flows, growth rate, discount rate
RU 3 (men’s sportswear) DCF method Projected cash flows, growth rate, discount rate
When possible, Company X supplements its DCF analysis with implied multiples from relevant guideline
transactions that have taken place since the most recent impairment testing date. Although there were
no such similar transactions with publicly available data since the 20X1 annual impairment test,
Company X identified certain trends related to relevant guideline companies as a whole that it believed
were relevant to its analysis.
As discussed above (as part of Company X’s initial analysis of the starting point for each of its reporting
units), Company X identified trends in its relevant guideline companies’ stock prices and market
capitalizations and in the overall consumer retail industry index that it included in its qualitative assessment
for each of its reporting units. Further, as discussed below, Company X considered its earnings before
interest and taxes (EBIT) growth for RU 1 and RU 3 relative to the relevant guideline companies.

B.1.4 Identify events and circumstances

In addition to the relevant events and circumstances applicable to all three reporting units discussed above,
Company X identified the following relevant events and circumstances specific to RU 1 and RU 3 since its
last quantitative impairment test that could affect the reporting unit’s fair value or carrying amount.
For RU 1 (women’s sportswear):
• The market in which RU 1 operates has experienced greater than expected growth due to style
innovations for women’s sportswear, particularly in the diversification of clothing for various niche
markets, including relaxed, lighter-weight garments made for yoga and more supportive spandex
garments for higher-intensity activities.
• RU 1’s revenues grew by 5% (compared with expected revenue growth of 2%) due to the introduction
of new product lines that capitalized on the demand in niche exercise markets.
• RU 1’s EBIT grew by 8% (compared with expected EBIT growth of 4%) due to its ability to capitalize on
existing processes to absorb some of the direct costs associated with the new product lines. Average
EBIT growth for RU 1’s guideline companies was 6% compared with expected EBIT growth of 4%.
• The product diversification in the women’s sportswear market has led to increased competition as
several new companies try to capitalize on the growing trend toward more innovative styles.
• Operating expenses for RU 1 increased slightly more than expected (a 4% increase compared with a
3% expected increase) primarily due to the shift in marketing dollars from casual wear to women’s
sportswear.
For RU 3 (men’s sportswear):
• RU 3’s revenues grew by 7% (compared with expected revenue growth of 2%) primarily due to a fire
at a key competitor’s warehouse. The key competitor began operating at full capacity again in
November 20X2.
• Despite flat sales in the men’s sportswear industry, competition is increasing steadily. Several new
competitors entered the market in 20X2 after the fire slowed the operations of RU 3’s key
competitor, and some of them remain active players in the market.
• RU 3’s operating expenses increased 4% (compared with expected growth of 1%), primarily due to
increased production to meet demand resulting from the fire at the key competitor’s warehouse.
Additionally, an unexpected settlement of a lawsuit in the current year resulted in a loss to RU 3 that had a
negative effect on EBIT. As a result, RU 3’s EBIT grew 1%, slightly worse than forecasted growth of 2%. The
lawsuit also requires an additional payment in 20X3 that is expected to reduce EBIT by 1% in that year.
• RU 3 lost a key customer in its largest foreign market in September 20X2. The loss is expected to
reduce revenue and EBIT by 8% and 6%, respectively.
• Average EBIT growth in RU 3’s market was in line with expectations, at 2%. No significant outliers
were found among RU 3’s guideline companies, with all coming in between 1% and 3% growth in EBIT.
For both RU 1 and RU 3:
• The current interest rate environment is slightly riskier than it was in the prior year.
• Both RU 1 and RU 3 use foreign distributors for certain raw materials to produce sportswear.
Economic uncertainty in these foreign jurisdictions led to unexpected unfavorable changes in foreign
exchange rates, which decreased margins by approximately 2%.
• There have been no significant changes in the carrying amount or composition of RU 1 or RU 3.

B.1.5 Weigh the identified events and circumstances

Company X used information in the previous step to determine the effect that each of the identified
events and circumstances could have on the significant inputs used to determine the fair value of RU 1
and RU 3. The following table summarizes Company X’s assessment of the effect of the identified events
and circumstances on each significant input.
Weigh the identified events and circumstances

Identified event or Affected key driver of RU 1 RU 3
circumstance fair value (women’s sportswear) (men’s sportswear)
Macroeconomic events and circumstances
Lower than expected GDP • Growth rate - -
growth • Discount rate
Interest rates rising • Discount rate - -
Foreign exchange rate increase • Projected cash flows - -
Industry-specific events and circumstances
Industry growth compared to • Growth rate
++ 0
expectations
Increase in competition for • Projected cash flows
-- --
sportswear • Growth rate
Temporary decrease in • Projected cash flows
competition from a key
N/A 0
competitor in men’s
sportswear due to a fire
Entity-specific events and circumstances
Revenue trends • Growth rate ++ 0
• Projected cash flows
Operating expense trends • Projected cash flows - 0
Loss on settlement of lawsuit • Projected cash flows N/A -
No significant changes to • Carrying amount
0 0
carrying amount
Loss of key customer in • Projected cash flows
N/A --
foreign market • Growth rate
Other identified events and circumstances
Excess fair value +++ ++
Decreasing stock prices and • Growth rate + +

market capitalization for
industry peersB1
EBIT trendsB2 • Projected cash flows ++ 0
B1
Although Company X uses a DCF method for determining the fair value of its reporting units, it also considered the decreasing
stock prices and market capitalizations of its peer companies (which is more relevant when using a market multiple approach) in
its analysis. Company X evaluated this factor as having a low positive effect on its analysis of both RU 1 and RU 3 and, therefore,
gave little weight to it in its qualitative assessment.
B2
Although Company X uses a DCF method for determining the fair value of its reporting units, it also considered the EBIT trends of
its reporting units to relevant guideline companies (which is more relevant when using a market multiple approach) in its analysis.
Company X evaluated this factor as having a medium positive effect on its analysis of RU 1 and weighed it accordingly in its
qualitative assessment. Company X determined that this factor had a neutral effect on its analysis for RU 3 and therefore gave
little weight to it in its qualitative assessment.

B.1.6 Conclude
The final step in the process is to conclude. Company X documented its conclusion for the qualitative
assessment for each reporting unit separately below.
B.1.6.1 Conclude — RU 1 (women’s sportswear)

Company X evaluated the relevant events and circumstances identified in its 20X2 qualitative
assessment of RU 1 and weighed the evidence as documented above.
As a starting point, RU 1 had an excess fair value of 50% as of 1 October 20X1, and there were no
significant changes in RU 1’s carrying amount since that date. Company X’s qualitative assessment
identified certain events and circumstances as having a positive effect on the inputs and assumptions
that most affect fair value. For example, greater-than-expected demand in the women’s sportswear
market led to positive financial results for RU 1. RU 1 was able to capitalize on this demand by
introducing new products, which resulted in revenues growing by 5% (compared with forecasted growth
of 2%) and EBIT growing by 8% (compared with forecasted growth of 4%).
Company X also identified other events and circumstances as having a negative effect on the inputs and
assumptions that most affect fair value. For example, the greater-than-expected demand in women’s
sportswear was partially offset by the increase in competition from new companies entering this market
in an attempt to capitalize on this growing demand. Further, while RU 1’s operating expenses increased,
this was generally consistent with expectations, since RU 1 shifted its advertising dollars from casual
wear to sportswear. Finally, while the overall economy grew at a slower pace than expected leading to a
slight increase in interest rates, these macroeconomic trends are not expected to have a significant
effect on fair value.
Company X weighed all of the identified events and circumstances that could affect the fair value of RU 1
and determined that the events and circumstances identified as having a positive effect have a greater
effect on the fair value of RU 1 than those identified as having a negative effect. In making that
determination, Company X concluded that any negative events and circumstances that were not offset
by positive events and circumstances could be absorbed by the strong excess fair value for RU 1 in the
most recent quantitative impairment test. Based on this assessment, Company X concluded that it was
not more likely than not that RU 1 was impaired and that a quantitative impairment test was not necessary.
B.1.6.2 Conclude — RU 3 (men’s sportswear)

Company X evaluated the relevant events and circumstances identified in its 20X2 qualitative assessment
of RU 3 and weighed the evidence as documented above.
As a starting point, RU 3 had an excess fair value of 15% as of 1 October 20X1, and there weren’t any
significant changes in RU 3’s carrying amount since that date. Company X’s qualitative assessment
identified certain events and circumstances that initially appeared to have a positive effect on the inputs
and assumptions that most affect fair value.
However, upon further evaluation of these events, Company X determined that that there were other
industry and entity-specific events that caused it to change its preliminary assessment. For example, RU
3’s revenue growth of 7% (as compared to forecasted growth of 2%) was primarily generated from an
unforeseen event — the increased business due to a fire at a key competitor’s warehouse. Further, it will
be a challenge for Company X to achieve future growth due to the fact that its key competitor was fully
operational again by November 20X2, increased competition from new entrants to the market and the
loss of a key customer in September 20X2.

Company X also identified other events and circumstances as having a negative effect on the inputs and
assumptions that most affect fair value. For example, the loss relating to the settlement of the lawsuit is
expected to a have negative effect on EBIT in 20X3. While the overall economy grew at a slower pace
than expected leading to a slight increase in interest rates, these macroeconomic trends are not
expected to have a significant effect on fair value.
Company X weighed all of the identified events and circumstances that could affect the fair value of RU 3
and determined that the events and circumstances identified as having a negative effect have a greater
effect on its fair value than those identified as having a positive effect, and the negative effect could not
be absorbed by the excess fair value in RU 3 as of the most recent quantitative impairment test. As a
result, Company X could not conclude, based on the qualitative assessment, that it was not more likely
than not that the fair value of RU 3 was less than its carrying amount. Therefore, Company X proceeded
to the quantitative impairment test.
B.2 Indefinite-lived intangible assets

B.2.1 Background information
The following illustrates how the five-step process could be applied to a company’s indefinite-lived
intangible assets.
ABC Co. is an SEC registrant that operates in the media and entertainment industry, broadcasting music,
sports, entertainment and other programming. It broadcasts throughout the US, reaching viewers on
local, regional and national television and radio stations in all US states and territories. ABC Co. has three
indefinite-lived intangible assets: (1) the ABC Co. trade name (established when acquired in a prior
business combination), (2) a license from the Federal Communications Commission (FCC) to broadcast in
various US markets and (3) the cable network distribution agreements of its fully distributed, well-
established cable weather network. ABC Co. acquired the weather network a few years ago and has not
rebranded it with the ABC Co. name.
ABC Co. is a calendar year-end company and uses 1 October as its annual impairment assessment date for all
of its indefinite-lived intangible assets. ABC Co. has performed the quantitative impairment test (i.e., determined
the fair value of its indefinite-lived intangible assets) in every year since initial recognition. The last such
test was performed in the prior year. ABC Co. has never recorded an impairment on any of these assets.
The primary valuation method for each asset has been a variation of the income approach. ABC Co. has
historically used the relief from royalty method to value its trade name, the Greenfield method to value
its FCC license and the multi-period excess earnings method (MPEEM) to value its cable network
distribution asset. For illustrative purposes, the qualitative assessment of the FCC license will focus on
ABC Co.’s license to broadcast in Old City, US.
In 20X2, ABC Co. implemented an impairment testing policy that includes the qualitative assessment.
ABC Co. identified the significant inputs used to determine the fair value for each of its indefinite-lived
intangible assets. ABC Co. then evaluated whether those significant inputs had been affected by events and
circumstances that were positive, negative or neutral (indicated by a plus symbol, minus symbol or a zero,
respectively). In doing so, ABC Co. based its analysis on the specific facts and circumstances applicable to
its indefinite-lived intangible assets, designing its assessment to address the perceived sensitivity of each
asset to changes in fair value. Based on its facts and circumstances, ABC Co. used its judgment to assign a
weight of high, medium or low to each of the inputs based on the estimated effect on fair value, as follows:
• High (three symbols) — estimated to have an effect on fair value greater than 10%
• Medium (two symbols) — estimated to have an effect on fair value of 5% to 10%
• Low (one symbol) — estimated to have an effect on fair value of less than 5%

After identifying and assigning weight to the events and circumstances that most affect the fair value of
its indefinite-lived intangible assets, ABC Co.’s policy as outlined below then includes an analysis of all
factors in their totality to determine whether they support a conclusion that it is not more likely than not
that the indefinite-lived intangible asset’s fair value is less than its carrying amount.
B.2.2 Determine the starting point

The following provides additional background about ABC Co.’s indefinite-lived intangible assets as of
1 October 20X1 (the last time a quantitative impairment test was performed).
Excess fair value Excess fair

Fair value Carrying amount
($) value (%)
ABC Co. trade name $ 170,000 $ 100,000 $ 70,000 70%
FCC license 57,500 50,000 7,500 15%
Cable network distribution asset1 42,000 40,000 2,000 5%
1
The cable network distribution asset represents various cable network and satellite agreements grouped into a single unit of accounting.
ABC Co. also identified the following events and circumstances since its last quantitative impairment test
that could affect the significant inputs used to determine the fair value of all three of its indefinite-lived
intangible assets:
• Overall economic trends have shown positive growth in the US since the last quantitative impairment
test. In the past year, the relevant US stock market index is up 10%, and the broadcast industry index
and fair values of ABC Co.’s peer companies have increased 8%.
• The advertising market in the US has shown positive growth in the current year, bolstered primarily
by coverage of the national election.
• The FCC license is for the local market in Old City. The local economy in Old City is sluggish, trailing
behind national averages. The population of Old City has also declined in the last two years as people
have moved away.
• ABC Co.’s market capitalization, share price and EBITDA all increased slightly over the last year.
These increases are slightly below those of ABC Co.’s peer group.
• Due to the entrance of a new competitor, ABC Co.’s cable weather network has lost advertiser
support in the past year. This increased competition also cost the cable weather network a significant
portion of its 15% market-share lead (now about 8%).
The table below summarizes how ABC Co. considered its starting point for applying the qualitative
assessment to each of its indefinite-lived intangible assets, using the weighting described above.
Determine the starting point

Cable network
ABC Co. trade name FCC license distribution asset
Excess fair value +++ ++ +
Macroeconomic conditions ++ + ++
Industry-specific conditions + - -
Company-specific conditions + + ---

Based on ABC Co.’s preliminary analysis of the starting point for each of its indefinite-lived intangible
assets, it decided to use the qualitative assessment for its trade name and FCC license indefinite-lived
intangible assets to determine whether it is more likely than not that each asset is impaired. This was
based on the strong excess fair value in the 20X1 analysis, strength in the overall economy and positive
results experienced by both ABC Co. and the industry in 20X2.
However, given the small amount of excess fair value of the cable network distribution asset and the
uncertainty of the negative evidence (e.g., increased competition, decline in market share), ABC Co.
decided to bypass the qualitative assessment and proceed directly to determining the fair value of this asset.
B.2.3 Identify the most relevant drivers of fair value

ABC Co. performed its assessment of the most relevant drivers of fair value for its trade name and FCC
license by first looking at the method used to determine fair value for each asset. Given the nature of its
indefinite-lived intangible assets, ABC Co. primarily uses the following methods under the income
approach to determine fair value:
• ABC Co. trade name — The company uses the relief from royalty method, measuring value based on
what ABC Co. would pay in royalties to a market participant if it did not own the trade name and had
to license it from a third party (i.e., the licensing costs it avoids by owning the asset).
• FCC license — The company uses the Greenfield method, measuring value based on the assumption
that ABC Co. is a hypothetical startup company that begins operations on the measurement date
with no assets except the license. Under this method, the forecasted cash flows assume the
hypothetical ABC Co. is operating under the existing competitive situation within each market.
This approach enables ABC Co. to isolate and measure the fair value of the license directly.
Based on its review of the method for determining fair value and other available information, ABC Co.
identified the following as the significant inputs used to determine fair value for each of its indefinite-
lived intangible assets:
Most relevant drivers of fair value

Indefinite-lived Primary method for
intangible asset determining fair value Significant inputs used to determine fair value
ABC Co. trade name Relief from royalty Projected ABC Co. revenues, growth rate, royalty rate,
method discount rate
FCC license Greenfield method Hypothetical cash flows (e.g., revenues, costs, capital
expenditures) for a new operation, growth rate,
discount rate
B.2.4 Identify events and circumstances

In addition to the relevant events and circumstances applicable to all three indefinite-lived intangible
assets discussed above, ABC Co. identified the following relevant events and circumstances specific to
the ABC Co. trade name and FCC license since the last impairment test that could affect the significant
inputs used to determine the fair value or the carrying amount of the indefinite-lived intangible assets.

For the ABC Co. trade name:
• ABC Co.’s industry grew more than anticipated (4% growth overall compared with analysts’
expectations of 2%).
• ABC Co.’s revenue grew approximately 13% from the previous year, compared with expected growth
of 8%. EBITDA also rose more than anticipated, 7% from the previous year compared with expected
growth of 2%.
• Actual results were better than expected, primarily because of a new reality TV program that won in
its time slot in all markets across the country.
• During the year, one of ABC Co.’s major competitors, XYZ Inc., licensed its trade name to another
entity. The negotiated royalty rate was 5%, more than the 4% rate that ABC Co. assumed in its prior-
year determination of fair value.
For the FCC license:
• A hypothetical startup company would need an initial buildup phase of five years before it would
achieve a normalized level of operations. Once that is achieved, the estimated terminal growth rate
under current market conditions in Old City, US, would be 3%. The prior-year quantitative impairment
test assumed a 4% terminal growth rate in the Old City market.
• Advertising rates for the Old City area are down because its economic troubles and population
declines have depressed consumer spending, making the market less attractive to advertisers.
For both the ABC Co. trade name and FCC license:
• The growth was driven primarily by business that relies on the ABC Co. trade name and FCC licenses.
Overall results were reduced by the poor performance of the cable weather network.
• Consumer preference has shifted from traditional broadcast programming (e.g., television, radio) to
digital formats (e.g., online streaming, downloads). The ABC Co. trade name has benefited (all
content is available for both traditional and digital distribution), but the FCC license has been
negatively affected by the shift in advertiser spending away from traditional broadcasting.
• Programming costs are increasing overall. The cost of acquiring, producing and distributing
programming is expected to rise 2% from the prior year.
• The current interest rate environment is relatively consistent with the prior year.
• Global economic uncertainty has caused the gross domestic product (GDP) to lag slightly behind
expectations, making the investing world less confident in companies’ ability to make accurate
financial forecasts. Due to uncertainty, the risk premium associated with discount rates is expected
to increase.
• There have been no significant changes in the carrying amount of either indefinite-lived intangible asset.

B.2.5 Weigh the identified events and circumstances

ABC Co. used the information identified in the previous step to determine the effect that each of the
identified events and circumstances could have on the significant inputs used to determine the fair value
of its indefinite-lived intangible assets. The following table summarizes its assessment of the effect of the
identified events and circumstances on each significant input.
Weigh the identified events and circumstances

Identified event or
circumstance Affected significant input ABC Co. trade name FCC license
Macroeconomic events and circumstances
Stagnant GDP growth • Projected revenues

(increased risk premium) - -
• Discount rate
Interest rates remain flat • Discount rate 0 0
Positive advertising growth in • Projected revenues
+ N/A
the US
Industry-specific events and circumstances
Industry growth above • Growth rate

+ N/A
expectations
Increase in broadcast industry • Growth rate
+ N/A
index
Shift to digital distribution • Hypothetical cash flows
for a new operation 0 --
• Growth rate
Entity-specific events and circumstances
ABC Co. actual results above • Projected revenues

++ N/A
projections
Market transaction licensing • Royalty rate
rate higher than prior year + N/A
assumption
Lower expected terminal • Growth rate
growth rate for Old City than N/A --
prior-year analysis
Declining population in FCC • Hypothetical cash flows
license market for a new operation N/A --
• Discount rate
Increasing programming costs • Hypothetical cash flows
0 -
for a new operation
No change to carrying amount • Carrying amount 0 0
Other events and circumstances
Excess fair value +++ +

B.2.6 Conclude
The final step in the process is to conclude. ABC Co. documented its conclusion for the qualitative
assessment for each indefinite-lived intangible asset separately below.
B.2.6.1 Conclude — ABC Co. trade name

ABC Co. evaluated the relevant events and circumstances identified for its 20X2 qualitative assessment
of its trade name and weighed the evidence as documented above.
As a starting point, the ABC Co. trade name had an excess fair value of 70% as of 1 October 20X1, and
there were no significant changes in its carrying amount since that date. ABC Co.’s qualitative
assessment identified certain events and circumstances as having a positive effect on the significant
inputs used to determine fair value. For example, ABC Co.’s revenue growth was better than forecast
(13% actual, compared with a forecast of 8%), as was its EBITDA growth (7% actual, compared with a
forecast of 2%). In addition, ABC Co.’s industry grew more than expected (4% actual, compared with a
forecast of 2%) and a recent market transaction provided evidence of a higher royalty rate for licenses of
similar trade names than what ABC Co. had assumed in its prior-year analysis (5% royalty rate achieved
as compared to ABC Co.’s previous estimates of 4%).
ABC Co. also identified other events and circumstances as having a negative effect on the significant
inputs used to determine the fair value of the trade name. Specifically, ABC Co. identified the stagnant
GDP growth and associated rising risk premium as negatively affecting the significant inputs used to
determine the fair value of the trade name asset. Further, ABC Co. forecasts programming costs to
increase 2% and interest rates to remain flat. None of these items were expected to have more than a low
(i.e., 5% or less) effect on the asset’s fair value. ABC Co. evaluated these items in light of the positive
events and circumstances identified above to determine whether it was more likely than not that the
trade name asset was impaired.
ABC Co. weighed all of the identified events and circumstances that could affect the significant inputs used
to determine the fair value of its trade name. ABC Co. determined that the events and circumstances
identified as having a positive effect have a greater effect on the significant inputs used to determine the
fair value of the ABC Co. trade name than those identified as having a negative effect. In making that
determination, ABC Co. concluded that any negative events and circumstances that were not offset by
positive events and circumstances could be absorbed by the excess fair value for the ABC Co. trade name
in the most recent quantitative impairment test. Based on this assessment, ABC Co. concluded that it
was not more likely than not that the ABC Co. trade name was impaired and a quantitative impairment
test was not necessary.
B.2.6.2 Conclude — FCC license

ABC Co. evaluated the relevant events and circumstances identified for its 20X2 qualitative assessment
of its FCC license and weighed the evidence as documented above.
As a starting point, the FCC license had an excess fair value of 15% as of 1 October 20X1 and there were
no significant changes in the FCC license’s carrying amount since that date. ABC Co.’s qualitative
assessment identified certain events and circumstances as having a negative effect on the significant
inputs used to determine fair value. For example, the terminal growth rate in Old City is expected to
decrease by 1%, driven by rising costs and declining population in the local market. Additionally, the shift
from traditional programming to digital distribution and the increasing costs of programming are
expected to have a negative effect on the significant inputs used to determine the fair value of the FCC
license. These events and circumstances were expected to have a high or medium effect on fair value.

In addition to these events and circumstances, ABC Co. identified other events and circumstances as
having a negative or neutral effect on the significant inputs used to determine the fair value of the FCC
license. Specifically, ABC Co. identified the stagnant GDP growth and increasing programming costs as
negatively affecting the significant inputs used to determine the fair value of the FCC license. ABC Co.
also considered that interest rates are expected to remain flat. None of these items were expected to
have more than a low (i.e., 5% or less) effect on the asset’s fair value. ABC Co. evaluated these items in
light of the other negative events and circumstances identified above to determine whether it was more
likely than not that the trade name asset was impaired.
As indicated above, the FCC license had excess fair value of 15% in the prior year. For the FCC license to
be impaired, absent other factors, the decrease in the expected terminal growth rate for Old City would
have to affect the Greenfield valuation and cause the fair value of the trade name to decline by at least
15%. To isolate the effect of certain negative events and circumstances, ABC Co. performed a limited
sensitivity analysis. In this analysis, ABC Co. noted that a 1% drop in the Old City terminal growth rate
applied to the previous amounts used to calculate the terminal value resulted in a 5% reduction in gross
cash flows, before considering the increased cost structure and shift to digital media. These changes
would reduce the cash flows for the five-year projections and also result in an additional reduction to the
terminal value. Since it is anticipated that the discount rate would potentially increase due to the risk and
uncertainty associated with the business, the five-year projections and terminal value would be further
reduced when discounted.
ABC Co. weighed all of the identified events and circumstances that could affect the significant inputs
used to determine the fair value of the FCC license and determined that the events and circumstances
identified as having a negative effect could not be absorbed by the excess fair value in the FCC license as
of the most recent quantitative impairment test. As a result, ABC Co. could not conclude based on the
qualitative assessment that it was not more likely than not that the fair value of the FCC license was less
than its carrying amount. Therefore, ABC Co. proceeded to perform the quantitative impairment test
(i.e., calculate the fair value of the FCC license to compare it to its carrying amount).

C Examples — accounting for intangible
assets other than goodwill
The following examples are adapted from ASC 350-30-55. Each example describes an acquired
intangible asset, the facts and circumstances surrounding the determination of its useful life and the
subsequent accounting based on that determination. In practice, judgment will be required in making
these determinations. The facts and circumstances unique to each acquired intangible asset will need to
be considered.
Illustration C-1: Acquired customer list
A direct-mail marketing company acquired a customer list and expects to derive benefit from the
information on the acquired customer list for at least one year but for no more than three years, with
the best estimate being 18 months.
Analysis
The customer list would be amortized over 18 months, management’s best estimate of its useful
life, following the pattern in which the expected benefits will be consumed or otherwise used up.
Although the acquiring entity may intend to add customer names and other information to the list in
the future, the expected benefits of the acquired customer list relate only to the customers on that list
at the date of acquisition (a closed-group notion). The customer list would be reviewed for impairment
under ASC 360-10.
Illustration C-2: Acquired patent that expires in 15 years
The product protected by the patented technology is expected to be a source of cash flows for at least
15 years. The reporting entity has a commitment from a third party to purchase that patent in five
years for 60% of the fair value of the patent at the date it was acquired, and the entity intends to sell
the patent in five years.
Analysis
The patent would be amortized over its five-year useful life to the reporting entity following the pattern
in which the expected benefits will be consumed or otherwise used up. The amount to be amortized is
40% of the patent’s fair value at the acquisition date (residual value is 60%). The patent would be
reviewed for impairment under ASC 360-10.
Financial reporting developments Intangibles — goodwill and other | C-1

C Examples — accounting for intangible assets other than goodwill
Illustration C-3: Acquired copyright that has a remaining legal life of 50 years
An analysis of consumer habits and market trends provides evidence that the copyrighted material will
generate cash flows for approximately 30 more years.
Analysis
The copyright would be amortized over its 30-year estimated useful life following the pattern in which
the expected benefits will be consumed or otherwise used up and reviewed for impairment under
ASC 360-10.
Illustration C-4: Acquired broadcast license that expires in five years
The broadcast license is renewable every 10 years if the company provides at least an average level of
service to its customers and complies with the applicable FCC rules and policies and the FCC
Communications Act of 1934. The license may be renewed indefinitely at little cost and was renewed
twice prior to its recent acquisition. The acquiring entity intends to renew the license indefinitely, and
evidence supports its ability to do so. Historically, there has been no compelling challenge to the
license renewal. The technology used in broadcasting is not expected to be replaced by another
technology any time in the foreseeable future. Therefore, the cash flows from that license are
expected to continue indefinitely.
Analysis
The broadcast license would be deemed to have an indefinite useful life because cash flows are
expected to continue indefinitely. Therefore, the license would not be amortized until its useful life
is deemed to be no longer indefinite. The license would be tested for impairment in accordance with
the rules applicable to indefinite-lived intangible assets (i.e., an annual assessment of whether the
asset is impaired).
Illustration C-5: Acquired broadcast license, no assumed renewal
Assume the same facts as in Illustration C-4, except that the FCC subsequently decides that it will no
longer renew broadcast licenses, but rather will auction those licenses. At the time the FCC decision is
made, the broadcast license has three years until it expires. The cash flows from that license are
expected to continue until the license expires.
Analysis
Because the broadcast license can no longer be renewed, its useful life is no longer indefinite. Thus,
the acquired license would be tested for impairment in accordance with the rules applicable to
indefinite-lived intangible assets. The license would then be amortized over its remaining three-year
useful life following the pattern in which the expected benefits will be consumed or otherwise used up.
Because the license will be subject to amortization, in the future it would be reviewed for impairment
under ASC 360-10.

Illustration C-6: Acquired airline route authority from the United States to the United
Kingdom that expires in three years
The route authority may be renewed every five years, and the acquiring entity intends to comply with
the applicable rules and regulations surrounding renewal. Route authority renewals are routinely
granted at a minimal cost and have historically been renewed when the airline has complied with the
applicable rules and regulations. The acquiring entity expects to provide service to the United Kingdom
from its hub airports indefinitely and expects that the related supporting infrastructure (airport gates,
slots and terminal facility leases) will remain in place at those airports for as long as it has the route
authority. An analysis of demand and cash flows supports those assumptions.
Analysis
Because the facts and circumstances support the acquiring entity’s ability to continue providing air
service to the United Kingdom from its US hub airports indefinitely, the intangible asset related to the
route authority is considered to have an indefinite useful life. Therefore, the route authority would not
be amortized until its useful life is deemed to be no longer indefinite and would be tested for
impairment in accordance with the rules applicable to indefinite-lived intangible assets.
Illustration C-7: Acquired trademark that is used to identify and distinguish a leading consumer
product that has been a market-share leader for the past eight years
The trademark has a remaining legal life of five years, but it is renewable every 10 years at little cost.
The acquiring entity intends to continuously renew the trademark, and evidence supports its ability to
do so. An analysis of product life cycle studies; market, competitive and environmental trends; and
brand extension opportunities provide evidence that the trademarked product will generate cash flows
for the acquiring entity for an indefinite period of time.
Analysis
The trademark would be deemed to have an indefinite useful life because it is expected to contribute
to cash flows indefinitely. Therefore, the trademark would not be amortized until its useful life is no
longer indefinite. The trademark would be tested for impairment in accordance with the rules
applicable to indefinite-lived intangible assets.
Illustration C-8: Trademark that distinguished a leading consumer product that was acquired
10 years ago
When it was acquired, the trademark was considered to have an indefinite useful life because the
product was expected to generate cash flows indefinitely. During the annual impairment test of the
intangible asset, the entity determines that unexpected competition has entered the market that will
reduce future sales of the product. Management estimates that cash flows generated by that
consumer product will be 20% less for the foreseeable future; however, management expects that the
product will continue to generate cash flows indefinitely at those reduced amounts.
Analysis
As a result of the projected decrease in future cash flows, the entity determines that the estimated fair
value of the trademark is less than its carrying amount, and an impairment loss is recognized. Because
it is still deemed to have an indefinite useful life, the trademark would continue to not be amortized
and would continue to be tested for impairment in accordance with the rules applicable to indefinite-
lived intangible assets.

Illustration C-9: Trademark for a line of automobiles that was acquired several years ago in an
acquisition of an automobile company
The line of automobiles had been produced by the acquired entity for 35 years with numerous new
models developed under the trademark. At the acquisition date, the acquiring entity expected to
continue to produce that line of automobiles, and an analysis of various economic factors indicated
there was no limit to the period of time the trademark would contribute to cash flows. Because cash
flows were expected to continue indefinitely, the trademark was not amortized. Management recently
decided to phase out production of that automobile line over the next four years.
Analysis
Because the useful life of that acquired trademark is no longer deemed to be indefinite, the trademark
would be tested for impairment in accordance with the rules applicable to indefinite-lived intangible
assets. The carrying amount of the trademark after adjustment, if any, would then be amortized over
its remaining four-year useful life following the pattern in which the expected benefits will be
consumed or otherwise used up. Because the trademark will be subject to amortization, in the future it
would be reviewed for impairment under ASC 360-10.
Illustration C-10: Acquired technology license that renews annually
An exclusive, annually renewable technology license with a third party is acquired by an entity that has
made significant progress in developing next-generation technology for digital video products. The
acquiring entity believes that in two years, after it has completed developing its next-generation
products, the acquired technology license will be obsolete because customers will convert to the
acquiring entity’s products. Market participants, however, are not as advanced in their development
efforts and are not aware of the acquiring entity’s proprietary development efforts. Thus, those
market participants would expect the technology license to be obsolete in three years. The acquiring
entity determines that the fair value of the technology license utilizing three years of cash flows is
$10 million, consistent with the highest and best use of the asset by market participants.
Analysis
In ASC 350-30-35-3(d), the acquiring entity would consider its own historical experience in renewing
or extending similar arrangements. In this case, the acquiring entity lacks historical experience in
renewing or extending similar arrangements. Therefore, it would consider the assumptions that a
market participant would use consistent with the highest and best use of the technology license.
However, because the acquiring entity expects to use the technology license until it becomes obsolete
in two years, it must adjust the market participants’ assumptions for the entity-specific factors in
ASC 350-30-35-3, specifically item (a), which requires consideration of the entity’s expected use of
the asset. As a result, the technology license would be amortized over a two-year period. The
technology license would be reviewed for impairment under ASC 360-10.

Illustration C-11: Acquired customer relationship
An insurance company acquired 50 customer relationships operating under contracts that are
renewable annually. The acquiring entity determines that the fair value of the customer relationship
asset is $10 million, considering assumptions (including turnover rate) that a market participant would
make consistent with the highest and best use of the asset by market participants. An income
approach was used to determine the fair value of the acquired customer relationship asset.
Analysis
In applying ASC 350-30-35-3, the acquiring entity would consider its own historical experience in
renewing or extending similar customer relationships. In this case, the acquiring entity concludes that
its customer relationships are dissimilar to the acquired customer relationships and, therefore, the
acquiring entity lacks historical experience in renewing or extending similar arrangements.
Accordingly, the acquiring entity considers turnover assumptions that market participants would make
about the renewal or extension of the acquired customer relationships or similar arrangements.
Without evidence to the contrary, the acquiring entity expects that the acquired customer
relationships will be renewed or extended at the same rate as a market participant would expect, and
no other factors would indicate a different useful life is appropriate. Thus, absent any other of the
entity-specific factors in ASC 350-30-35-3, in determining the useful life for amortization purposes,
the entity should consider the period of expected cash flows used to measure the fair value of the
asset. The customer relationships would be reviewed for impairment under ASC 360-10.
Illustration C-12: Trade name held for defensive purposes
Entity A, a consumer products manufacturer, acquires an entity that sells a product that competes with
one of Entity A's existing products. Entity A plans to discontinue the sale of the competing product within
the next six months, but will maintain the rights to the trade name, at minimal expected cost, to prevent
a competitor from using the trade name. As a result, Entity A's existing product is expected to
experience an increase in market share. Entity A does not have any current plans to reintroduce the
acquired trade name in the future.
Analysis
Because Entity A does not intend to actively use the acquired trade name, but intends to hold the
rights to the trade name to prevent others from using it, the trade name meets the definition of a
defensive intangible asset.

D Summary of important changes
The following highlights important changes to this publication since the July 2021 edition:
• Section 2.5 was updated to reflect the adoption of ASC 606. ASC 606 is now effective for all entities.
Financial reporting developments Intangibles — goodwill and other | D-1

E Differences between US GAAP and IFRS
Guidance US GAAP IFRS

Subsequent accounting Intangible assets are subsequently Intangible assets are subsequently
for intangible assets accounted for at cost, less accumulated accounted for at either:
amortization and any impairment losses.
• Cost less accumulated amortization
and any impairment losses
• Fair value (if an active market exists)
less accumulated amortization and
any impairment loss (referred to as
the revaluation model)
Qualitative impairment Companies may first assess qualitative A similar optional qualitative assessment
assessment — indefinite- factors to determine whether it is more does not exist. Each indefinite-lived
lived intangible assets likely than not that an indefinite-lived intangible asset (or cash generating unit
intangible asset is impaired. If a company (CGU) to which it belongs) must be tested
concludes that is the case, it must annually for impairment.
determine the fair value of the asset,
compare it to its carrying amount and
recognize an impairment charge, if any.
If it concludes otherwise, it can stop.
Level of assessment and Level of Assessment for Impairment Level of Assessment for Impairment
recognition and Testing Testing
measurement of an Indefinite-lived intangible assets If the indefinite-lived intangible asset
impairment loss — separately recognized should be does not generate cash flows that are
indefinite-lived assessed for impairment individually largely independent of those from other
intangible assets unless they operate in concert with other assets or groups of assets, then the
indefinite-lived intangible assets as a indefinite-lived intangible asset should be
single asset (i.e., the indefinite-lived tested for impairment as part of the CGU
intangible assets are essentially to which it belongs, unless certain
inseparable). Indefinite-lived intangible conditions are met.
assets may not be combined with other
assets (e.g., finite-lived intangible assets
or goodwill) for purposes of an
impairment test.
Recognition and Measurement of an Recognition and Measurement of an
Impairment Loss Impairment Loss
An impairment loss is recognized for the An impairment loss is recognized for the
excess of the carrying amount of the excess of the carrying amount of the
indefinite-lived intangible asset over its indefinite-lived intangible asset over its
fair value. recoverable amount (higher of fair value
less costs to sell and value in use).
Financial reporting developments Intangibles — goodwill and other | E-1


Acquisition of an An assembled workforce that is acquired An assembled workforce that is acquired
assembled workforce in as part of an asset acquisition should be as part of an asset acquisition generally
an asset acquisition recognized as an intangible asset. For is not recognized as an intangible asset
intangible assets that are acquired because the entity usually has
individually or within a group of assets, insufficient control over the expected
the FASB observed that the asset future economic benefits of that
recognition criteria in CON 5 are met assembled workforce.
even though the contractual-legal IFRS 3(R) precludes the recognition of an
criterion or separability criterion has not assembled workforce as a separate
been met. acquired asset in a business
ASC 805 precludes the recognition of an combination.
assembled workforce as a separate
acquired asset in a business
combination.
Assignment of goodwill Goodwill is assigned to a reporting unit, Goodwill is allocated to a CGU or group of
which is an operating segment or one CGUs which represents the lowest level
level below an operating segment within the entity at which goodwill is
(component). monitored for internal management
purposes and cannot be larger than an
operating segment as defined in IFRS 8,
Segment Reporting. IAS 36 defines a
CGU as the smallest identifiable group of
assets that generates cash inflows that
are largely independent of the cash
inflows from other assets or group of
assets.
Qualitative assessment — Companies may first assess qualitative No similar optional qualitative
goodwill factors to determine whether it is more assessment exists. Each CGU (or group
likely than not that the fair value of a of CGUs) must be tested annually for
reporting unit is less than its carrying impairment.
amount. If a company concludes that is
the case, it must perform the
quantitative impairment test. If it
concludes otherwise, it can stop.
Method of determining A two-step goodwill impairment test is A one-step goodwill impairment test is
and calculating performed as follows: performed at the CGU level. The CGU’s
impairment loss — Step 1: The fair value of the reporting (or group of CGUs’) carrying amount,
goodwill (before the unit is compared to its carrying amount. including goodwill, is compared to its
adoption of ASU 2017-04) If the carrying amount of the reporting recoverable amount (greater of fair
unit exceeds its fair value, then Step 2 is value less cost to sell and value in use).
performed to measure the amount of Value in use is defined as the present
impairment loss, if any. value of the future cash flows expected
Step 2: The goodwill impairment loss is to be derived from an asset or CGU.
the amount by which the carrying Any impairment loss (amount by which
amount of the goodwill exceeds the the CGU‘s carrying amount, including
implied fair value of the goodwill goodwill, exceeds its recoverable
determined by assigning the fair value of amount) is allocated first to reduce
the reporting unit to all of the assets and goodwill to zero, then, subject to certain
liabilities of that unit (including any limitations, the carrying amount of other
unrecognized intangible assets) as if the assets in the CGU is reduced pro rata
reporting unit had been acquired in a based on the carrying amount of each
business combination. The amount of the asset.
impairment loss is limited to the carrying
amount of the goodwill.


Method of determining The reporting unit’s fair value is compared A one-step goodwill impairment test is
and calculating with its carrying amount. If the carrying performed at the CGU level. The CGU’s
impairment loss — amount of the reporting unit exceeds the (or group of CGUs’) carrying amount,
goodwill (after the fair value, the entity will record an including goodwill, is compared to its
adoption of ASU 2017-04) impairment loss based on the difference. recoverable amount (greater of fair
The impairment loss will be limited to the value less cost to sell and value in use).
amount of goodwill allocated to that Value in use is defined as the present
reporting unit. value of the future cash flows expected
to be derived from an asset or CGU.
Any impairment loss (amount by which
the CGU‘s carrying amount, including
goodwill, exceeds its recoverable amount)
is allocated first to reduce goodwill to
zero, then, subject to certain limitations,
the carrying amount of other assets in
the CGU is reduced pro rata based on the
carrying amount of each asset.
Impairment of goodwill In a business combination, ASC 805 IFRS 3(R) permits an acquirer to
recognized in an requires entities to measure measure the noncontrolling interest
acquisition of less than noncontrolling interest at fair value. components that are present ownership
100% of the acquiree When a noncontrolling interest exists in interests and entitle their holders to a
the reporting unit, any goodwill proportionate share of the acquiree’s net
impairment loss is allocated to the asset in the event of liquidation either at
controlling and noncontrolling interest fair value, including goodwill, or at the
on a rational basis. noncontrolling interest’s proportionate
share of the fair value of the acquiree’s
identifiable net assets, exclusive of
goodwill. All other components of
noncontrolling interest are measured at
fair value unless another measurement
basis is required by IFRS.
Noncontrolling interest measured at
fair value
When a noncontrolling interest exists in
the CGU, any goodwill impairment loss is
allocated to the controlling and
noncontrolling interest either on a rational
basis or on the same basis as that on
which profit or loss is allocated (generally
based on relative ownership interests).
Noncontrolling interest measured at its
share of the fair value of the acquiree’s net
identifiable assets
The recoverable amount of the CGU
includes goodwill attributable to both the
controlling and noncontrolling interests.
However, because the entity measured
noncontrolling interest at its share of the
fair value of the acquiree‘s net identifiable
assets, the carrying amount of the CGU
includes goodwill attributable only to the
controlling interest. Therefore, the
carrying amount of the goodwill allocated
to the CGU is grossed up to include the
goodwill attributable to the noncontrolling
interest. The adjusted carrying amount of
the CGU is then compared to the
recoverable amount to determine
whether the CGU is impaired.


Any goodwill impairment loss is allocated
to the controlling and noncontrolling
interest either on a rational basis or on
the same basis as that on which profit or
loss is allocated (generally based on
relative ownership interests). However,
because goodwill is recognized only to
the extent of the controlling interest,
only the goodwill impairment loss
allocated to the controlling interest is
recognized.
Goodwill amortization Eligible private companies and NFPs may A similar accounting alternative does
accounting alternative elect to apply the goodwill amortization not exist.44
for private companies accounting alternative for the subsequent
and NFPs measurement, derecognition,
presentation and disclosure of goodwill.
The goodwill amortization accounting
alternative requires goodwill to be
amortized and the use of a simplified one-
step impairment test.
Goodwill triggering event Eligible private companies and NFPs that A similar accounting alternative does
evaluation accounting elect the goodwill triggering event not exist.
alternative for private evaluation accounting alternative are
companies and NFPs required to evaluate goodwill for
impairment only as of their annual
reporting date or interim reporting date, if
they report more frequently.
Reversal of loss Reversal of impairment losses is not Reversal of impairment losses is required
permitted (except for assets held for sale). if the recoverable amount increases,
except for goodwill.
44
IFRS reporters that apply IFRS for Small and Medium-Sized Entities are required to amortize goodwill.

F Abbreviations used in this publication
Abbreviation FASB Accounting Standards Codification

ASC 205 FASB ASC Topic 205, Presentation of Financial Statements
ASC 210 FASB ASC Topic 210, Balance Sheet
ASC 235 FASB ASC Topic 235, Notes to Financial Statements
ASC 250 FASB ASC Topic 250, Accounting Changes and Error Corrections
ASC 280 FASB ASC Topic 280, Segment Reporting
ASC 323 FASB ASC Topic 323, Investments — Equity Method and Joint Ventures
ASC 350 FASB ASC Topic 350, Intangibles — Goodwill and Other
ASC 360 FASB ASC Topic 360, Property, Plant, and Equipment
ASC 450 FASB ASC Topic 450, Contingencies
ASC 606 FASB ASC Topic 606, Revenue from Contracts with Customers
ASC 610 FASB ASC Topic 610, Other Income
ASC 715 FASB ASC Topic 715, Compensation — Retirement Benefits
ASC 730 FASB ASC Topic 730, Research and Development
ASC 740 FASB ASC Topic 740, Income Taxes
ASC 805 FASB ASC Topic 805, Business Combinations
ASC 810 FASB ASC Topic 810, Consolidation
ASC 820 FASB ASC Topic 820, Fair Value Measurement
ASC 830 FASB ASC Topic 830, Foreign Currency Matters
ASC 852 FASB ASC Topic 852, Reorganizations
ASC 926 FASB ASC Topic 926, Entertainment — Films
ASC 944 FASB ASC Topic 944, Financial Services — Insurance
ASC 946 FASB ASC Topic 946, Financial Services — Investment Companies
ASC 958 FASB ASC Topic 958, Not-for-Profit Entities
Financial reporting developments Intangibles — goodwill and other | F-1

F Abbreviations used in this publication
Abbreviation Other Authoritative Standards

ASU 2010-28 Accounting Standards Update, Intangibles — Goodwill and Other (Topic 350): When to
Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or
Negative Carrying Amounts (a consensus of the Emerging Issues Task Force)
ASU 2011-08 Accounting Standards Update, Intangibles — Goodwill and Other (Topic 350): Testing
Goodwill for Impairment
ASU 2014-02 Accounting Standards Update, Intangibles — Goodwill and Other (Topic 350):
Accounting for Goodwill (a consensus of the Private Company Council)
ASU 2016-13 Accounting Standards Update, Financial Instruments — Credit Losses
(Topic 326): Measurement of Credit Losses on Financial Instruments
Simplifying the Test for Goodwill Impairment
ASU 2019-10 Accounting Standards Update, Financial Instruments — Credit Losses (Topic 326),
Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates
Accounting Alternative for Evaluating Triggering Events
CON 5 FASB Statement of Financial Accounting Concepts No. 5, Recognition and
Measurement in Financial Statements of Business Enterprises
CON 8.4 Chapter 4, Elements of Financial Statements, of FASB Statement of Financial
Accounting Concepts No. 8, Conceptual Framework for Financial Reporting
IAS 36 International Accounting Standard No. 36, Impairment of Assets
IFRS 3(R) International Financial Reporting Standard No. 3(R), Business Combinations
IFRS 8 International Financial Reporting Standard No. 8, Operating Segments
Regulation S-X SEC Regulation S-X, Form and content of and requirements for financial statements
Rule 5-02 Balance sheets
Rule 10-01 Interim financial statements
Abbreviation Other Non-Authoritative Standards
APB 16 APB Opinion No. 16, Business Combinations
EITF 02-7 EITF Issue No. 02-7, Unit of Accounting for Testing Impairment of Indefinite-Lived
Intangible Assets
EITF 08-7 EITF Issue No. 08-7, Accounting for Defensive Intangible Assets
EITF D-101 EITF Issue No. D-101, Clarification of Reporting Unit Guidance in Paragraph 30 of
FASB Statement No. 142
Statement 141 FASB Statement No. 141, Business Combinations
Statement 141(R) FASB Statement No. 141(R), Business Combinations
Statement 142 FASB Statement No. 142, Goodwill and Other Intangible Assets
and SFAS 142
SFAS 154 FASB Statement No. 154, Accounting Changes and Error Corrections
Financial reporting developments Intangibles — goodwill and other | F-2

G Glossary
This Appendix includes a list of terms defined in the Master Glossary of ASC 350 (shown as an excerpt
from the ASC), followed by a list of additional terms defined in other sections of the ASC Master Glossary
and used in this publication. Note that if a defined term is repeated in more than one Subtopic of ASC 350,
it is listed below only in the first Subtopic in which it appears as a defined term. For example, “Acquiree”
is included in the Glossary section of Subtopics 350-10, 350-20 and 350-30, but is listed only in the
350-10-20 section below. Subtopics 350-40 and 350-50 are not discussed in this publication and
therefore not included in this Appendix.

Glossary
350-10-20
Acquiree
The business or businesses that the acquirer obtains control of in a business combination. This term
also includes a nonprofit activity or business that a not-for-profit acquirer obtains control of in
an acquisition by a not-for-profit entity.
Acquirer
The entity that obtains control of the acquiree. However, in a business combination in which a variable
interest entity (VIE) is acquired, the primary beneficiary of that entity always is the acquirer.
Acquisition by a Not-for-Profit Entity

A transaction or other event in which a not-for-profit acquirer obtains control of one or more nonprofit
activities or businesses and initially recognizes their assets and liabilities in the acquirer’s financial
statements. When applicable guidance in Topic 805 is applied by a not-for-profit entity, the
term business combination has the same meaning as this term has for a for-profit entity. Likewise, a
reference to business combinations in guidance that links to Topic 805 has the same meaning as a
reference to acquisitions by not-for-profit entities.
Business
Paragraphs 805-10-55-3A through 55-6 and 805-10-55-8 through 55-9 define what is considered a
business.
Business Combination
A transaction or other event in which an acquirer obtains control of one or more businesses.
Transactions sometimes referred to as true mergers or mergers of equals also are business
combinations. See also Acquisition by a Not-for-Profit Entity.
Contract
An agreement between two or more parties that creates enforceable rights and obligations.
Customer
A party that has contracted with an entity to obtain goods or services that are an output of the entity’s
ordinary activities in exchange for consideration.
Financial reporting developments Intangibles — goodwill and other | G-1

G Glossary
Goodwill
An asset representing the future economic benefits arising from other assets acquired in a business
combination or an acquisition by a not-for-profit entity that are not individually identified and
separately recognized. For ease of reference, this term also includes the immediate charge recognized
by not-for-profit entities in accordance with paragraph 958-805-25-29.
Intangible Assets
Assets (not including financial assets) that lack physical substance. (The term intangible assets is used
to refer to intangible assets other than goodwill.)
Legal Entity
Any legal structure used to conduct activities or to hold assets. Some examples of such structures are
corporations, partnerships, limited liability companies, grantor trusts, and other trusts.
Mutual Entity
An entity other than an investor-owned entity that provides dividends, lower costs, or other economic
benefits directly and proportionately to its owners, members, or participants. Mutual insurance
entities, credit unions, and farm and rural electric cooperatives are examples of mutual entities.
Nonprofit Activity
An integrated set of activities and assets that is capable of being conducted and managed for the
purpose of providing benefits, other than goods or services at a profit or profit equivalent, as a
fulfillment of an entity’s purpose or mission (for example, goods or services to beneficiaries,
customers, or members). As with a not-for-profit entity, a nonprofit activity possesses characteristics
that distinguish it from a business or a for-profit business entity.
Not-for-Profit Entity
An entity that possesses the following characteristics, in varying degrees, that distinguish it from a
business entity:
a. Contributions of significant amounts of resources from resource providers who do not expect
commensurate or proportionate pecuniary return
b. Operating purposes other than to provide goods or services at a profit
c. Absence of ownership interests like those of business entities.
Entities that clearly fall outside this definition include the following:
a. All investor-owned entities
b. Entities that provide dividends, lower costs, or other economic benefits directly and
proportionately to their owners, members, or participants, such as mutual insurance entities,
credit unions, farm and rural electric cooperatives, and employee benefit plans.
Variable Interest Entity
A legal entity subject to consolidation according to the provisions of the Variable Interest Entities
Subsections of Subtopic 810-10.
Glossary
350-20-20
Noncontrolling Interest
The portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent. A
noncontrolling interest is sometimes called a minority interest.

G Glossary
Operating Segment
A component of a public entity. See Section 280-10-50 for additional guidance on the definition of an
operating segment.
Pending Content:
Transition Guidance: 350-20-65-2
Private Company
An entity other than a public business entity, a not-for-profit entity, or an employee benefit plan
within the scope of Topics 960 through 965 on plan accounting.
Public Business Entity

A public business entity is a business entity meeting any one of the criteria below. Neither a not-for-
profit entity nor an employee benefit plan is a business entity.
a. It is required by the U.S. Securities and Exchange Commission (SEC) to file or furnish financial
statements, or does file or furnish financial statements (including voluntary filers), with the SEC
(including other entities whose financial statements or financial information are required to be or
are included in a filing).
b. It is required by the Securities Exchange Act of 1934 (the Act), as amended, or rules or
regulations promulgated under the Act, to file or furnish financial statements with a regulatory
agency other than the SEC.
c. It is required to file or furnish financial statements with a foreign or domestic regulatory agency in
preparation for the sale of or for purposes of issuing securities that are not subject to contractual
restrictions on transfer.
d. It has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an
exchange or an over-the-counter market.
e. It has one or more securities that are not subject to contractual restrictions on transfer, and it is
required by law, contract, or regulation to prepare U.S. GAAP financial statements (including
notes) and make them publicly available on a periodic basis (for example, interim or annual
periods). An entity must meet both of these conditions to meet this criterion.
An entity may meet the definition of a public business entity solely because its financial statements or
financial information is included in another entity’s filing with the SEC. In that case, the entity is only a
public business entity for purposes of financial statements that are filed or furnished with the SEC.
Reporting Unit
The level of reporting at which goodwill is tested for impairment. A reporting unit is an operating
segment or one level below an operating segment (also known as a component).
Securities and Exchange Commission (SEC) Filer
An entity that is required to file or furnish its financial statements with either of the following:
a. The Securities and Exchange Commission (SEC)
b. With respect to an entity subject to Section 12(i) of the Securities Exchange Act of 1934, as
amended, the appropriate agency under that Section.
Financial statements for other entities that are not otherwise SEC filers whose financial statements are
included in a submission by another SEC filer are not included within this definition.

G Glossary
Security
A share, participation, or other interest in property or in an entity of the issuer or an obligation of the
issuer that has all of the following characteristics:
a. It is either represented by an instrument issued in bearer or registered form or, if not represented
by an instrument, is registered in books maintained to record transfers by or on behalf of the issuer.
b. It is of a type commonly dealt in on securities exchanges or markets or, when represented by an

instrument, is commonly recognized in any area in which it is issued or dealt in as a medium for
investment.
c. It either is one of a class or series or by its terms is divisible into a class or series of shares,
participations, interests, or obligations.
Intangibles — Goodwill and Other — Intangible Assets Other Than Goodwill

Glossary
350-30-20
Conduit Debt Securities
Certain limited-obligation revenue bonds, certificates of participation, or similar debt instruments
issued by a state or local governmental entity for the express purpose of providing financing for a
specific third party (the conduit bond obligor) that is not a part of the state or local government’s
financial reporting entity. Although conduit debt securities bear the name of the governmental entity
that issues them, the governmental entity often has no obligation for such debt beyond the resources
provided by a lease or loan agreement with the third party on whose behalf the securities are issued.
Further, the conduit bond obligor is responsible for any future financial reporting requirements.
Defensive Intangible Asset

An acquired intangible asset in a situation in which an entity does not intend to actively use the asset
but intends to hold (lock up) the asset to prevent others from obtaining access to the asset.
Intangible Asset Class

A group of intangible assets that are similar, either by their nature or by their use in the operations of
an entity.
Lease
An agreement conveying the right to use property, plant, or equipment (land and/or depreciable
assets) usually for a stated period of time.
Pending Content:
Transition Guidance: 842-10-65-1
A contract, or part of a contract, that conveys the right to control the use of identified property, plant,
or equipment (an identified asset) for a period of time in exchange for consideration.
Nonpublic Entity
Any entity that does not meet any of the following conditions:
a. Its debt or equity securities trade in a public market either on a stock exchange (domestic or
foreign) or in an over-the-counter market, including securities quoted only locally or regionally.
b. It is a conduit bond obligor for conduit debt securities that are traded in a public market
(a domestic or foreign stock exchange or an over-the-counter market, including local or
regional markets)

G Glossary
c. It files with a regulatory agency in preparation for the sale of any class of debt or equity securities
in a public market.
d. It is required to file or furnish financial statements with the Securities and Exchange Commission.
e. It is controlled by an entity covered by criteria (a) through (d).
Residual Value
The estimated fair value of an intangible asset at the end of its useful life to an entity, less any
disposal costs.
Useful Life
The period over which an asset is expected to contribute directly or indirectly to future cash flows.
In addition to the terms defined in the Master Glossary of ASC 350, the following terms are defined in the
following manner elsewhere in the ASC Master Glossary:

Segment Reporting — Overall
Glossary
280-10-20
Public Entity
A business entity or a not-for-profit entity that meets any of the following conditions:
a. It has issued debt or equity securities or is a conduit bond obligor for conduit debt securities that
are traded in a public market (a domestic or foreign stock exchange or an over-the-counter
market, including local or regional markets).
b. It is required to file financial statements with the Securities and Exchange Commission (SEC).
c. It provides financial statements for the purpose of issuing any class of securities in a public market.
Property, plant, and equipment — Overall
Glossary
360-10-20
Asset Group
An asset group is the unit of accounting for a long-lived asset or assets to be held and used, which
represents the lowest level for which identifiable cash flows are largely independent of the cash flows
of other groups of assets and liabilities.
Research and Development — Overall
Glossary
730-10-20
Research and Development
Research is planned search or critical investigation aimed at discovery of new knowledge with the hope
that such knowledge will be useful in developing a new product or service (referred to as product) or a
new process or technique (referred to as process) or in bringing about a significant improvement to an
existing product or process.
Development is the translation of research findings or other knowledge into a plan or design for a new
product or process or for a significant improvement to an existing product or process whether
intended for sale or use. It includes the conceptual formulation, design, and testing of product
alternatives, construction of prototypes, and operation of pilot plants.

G Glossary
Income Taxes — Overall

Glossary
740-10-20
Deferred Tax Asset
The deferred tax consequences attributable to deductible temporary differences and carryforwards. A
deferred tax asset is measured using the applicable enacted tax rate and provisions of the enacted tax law.
A deferred tax asset is reduced by a valuation allowance if, based on the weight of evidence available, it is
more likely than not that some portion or all of a deferred tax asset will not be realized.
Deferred Tax Liability
The deferred tax consequences attributable to taxable temporary differences. A deferred tax liability is
measured using the applicable enacted tax rate and provisions of the enacted tax law.
Fair Value Measurement — Overall
Glossary
820-10-20
Income Approach
Valuation approaches that convert future amounts (for example, cash flows or income and expenses) to
a single current (that is, discounted) amount. The fair value measurement is determined on the basis of
the value indicated by current market expectations about those future amounts.
Market Participants
Buyers and sellers in the principal (or most advantageous) market for the asset or liability that have all
of the following characteristics:
a. They are independent of each other, that is, they are not related parties, although the price in a
related-party transaction may be used as an input to a fair value measurement if the reporting
entity has evidence that the transaction was entered into at market terms
b. They are knowledgeable, having a reasonable understanding about the asset or liability and the
transaction using all available information, including information that might be obtained through
due diligence efforts that are usual and customary
c. They are able to enter into a transaction for the asset or liability
d. They are willing to enter into a transaction for the asset or liability, that is, they are motivated but
not forced or otherwise compelled to do so.
Unit of Account
The level at which an asset or a liability is aggregated or disaggregated in a Topic for recognition purposes.
Reorganizations — Overall
Glossary
852-10-20
Reorganization Value
The value attributed to the reconstituted entity, as well as the expected net realizable value of those
assets that will be disposed of before reconstitution occurs. Therefore, this value is viewed as the
value of the entity before considering liabilities and approximates the amount a willing buyer would
pay for the assets of the entity immediately after the restructuring.

H Index of ASC references in this
publication
ASC Paragraph Section in this publication

205-20-60-4 4.1 Financial statement presentation
250-10-45-1 3.5.1 Changing the goodwill assessment date
250-10-45-1 3A.5.1 Changing the goodwill assessment date
250-10-45-2 A.2.4.1 Transition requirements
280-10-50-1 3.8 Identification of reporting units
280-10-50-1 3.8.5 Additional observations
280-10-50-1 3A.8 Identification of reporting units
280-10-50-1 3A.8.5 Additional observations
280-10-50-11 3.8.4 Similar economic characteristics
280-10-50-11 3A.8.4 Similar economic characteristics
323-10-35-13 3.17 Goodwill related to equity method investments
323-10-35-13 3A.17 Goodwill related to equity method investments
323-10-35-13 A.2.3.2 Equity method goodwill
323-10-35-32 1.1 Scope
350-10-05-1 1.1 Scope
350-10-15-2 1.1 Scope
350-10-15-3 1.2 Initial recognition and measurement of intangible assets
350-10-40-1 2.5 Transfer or sale of intangible assets
Financial reporting developments Intangibles — goodwill and other | H-1

H Index of ASC references in this publication

350-20-05-1 1.1 Scope
350-20-05-2 1.1 Scope
350-20-05-4 1.1 Scope
350-20-05-4 A.1 Overview and scope
350-20-05-4A 1.1 Scope
350-20-05-4A A.1 Overview and scope
350-20-05-4B 1.1 Scope
350-20-05-6 A.2.2.5 Carrying amount of entity or reporting unit is zero or negative
350-20-15-2 1.1 Scope
350-20-15-3 1.1 Scope
350-20-20 A.1.1 Definition of a private company, a PBE and a not-for-profit entity
350-20-25-2 1.1 Scope
350-20-25-3 1.3 Internally developed intangible assets
350-20-35-1 3.1 Measurement and recognition of goodwill impairment
350-20-35-1 3.4 Goodwill impairment test of a reporting unit that includes all or
part of a foreign entity
350-20-35-1 3A.1 Measurement and recognition of goodwill impairment
350-20-35-1 3A.4 Goodwill impairment test of a reporting unit that includes all or
350-20-35-3A 3.1 Measurement and recognition of goodwill impairment
350-20-35-3A 3A.1 Measurement and recognition of goodwill impairment
350-20-35-3B 3.1 Measurement and recognition of goodwill impairment
350-20-35-3B 3A.1 Measurement and recognition of goodwill impairment
350-20-35-3C 3.6 Interim impairment test
350-20-35-3C 3.1.1 Optional qualitative assessment
350-20-35-3C 3.1.1.1.3 List of events and circumstances
350-20-35-3C 3.1.1.2.3 Identify events and circumstances
350-20-35-3C 3.1.2 Reporting units with zero or negative carrying amounts
350-20-35-3C 3A.1.1 Optional qualitative assessment
350-20-35-3C 3A.1.1.1.3 List of events and circumstances


350-20-35-3C 3A.1.1.2.3 Identify events and circumstances
350-20-35-3C 3A.6 Interim impairment test
350-20-35-3C A.2.2.2 Evaluating triggering events
350-20-35-3C A.2.2.3 Qualitative assessment
350-20-35-3D 3.1.1 Optional qualitative assessment
350-20-35-3D 3A.1.1 Optional qualitative assessment
350-20-35-3E 3.1.1 Optional qualitative assessment
350-20-35-3E 3A.1.1 Optional qualitative assessment
350-20-35-3F 3.1.1 Optional qualitative assessment
350-20-35-3F 3.1.1.1.3 List of events and circumstances
350-20-35-3F 3A.1.1 Optional qualitative assessment
350-20-35-3F 3A.1.1.1.3 List of events and circumstances
350-20-35-3G 3.1.1 Optional qualitative assessment
350-20-35-3G 3A.1.1 Optional qualitative assessment
350-20-35-7 3.1.3 Consideration of deferred income taxes in determining the
carrying amount of a reporting unit
350-20-35-7 3A.1.3 Consideration of deferred income taxes in determining the
350-20-35-7 3.3.2 Effect of deferred taxes on fair value assumptions
350-20-35-8A 3.1.2 Reporting units with zero or negative carrying amounts
350-20-35-8B 3A.1 Measurement and recognition of goodwill impairment
350-20-35-8B 3A.19 Deferred income taxes
350-20-35-8B A.2.2 Simplified impairment test
350-20-35-18 3.2 Goodwill impairment test is incomplete
350-20-35-19 3.2 Goodwill impairment test is incomplete


350-20-35-22 3.3 Fair value measurements of a reporting unit
350-20-35-22 3A.3 Fair value measurements of a reporting unit
350-20-35-22 3A.15 Goodwill impairment testing when a noncontrolling interest
exists
exists
exists
350-20-35-25 3A.3.2 Effect of deferred taxes on fair value assumptions
350-20-35-28 3.5 Frequency of goodwill impairment tests
350-20-35-28 3A.5 Frequency of goodwill impairment tests
350-20-35-30 3.6 Interim impairment test
350-20-35-30 3A.6 Interim impairment test
350-20-35-31 3.7 Goodwill impairment test in conjunction with another asset (or asset
group)
350-20-35-31 3A.7 Goodwill impairment test in conjunction with another asset (or asset
group)
350-20-35-32 3.7 Goodwill impairment test in conjunction with another asset (or asset
group)
350-20-35-32 3A.7 Goodwill impairment test in conjunction with another asset (or asset
group)


350-20-35-39 3.12 Reorganization of a company’s reporting structure
350-20-35-39 3.9 Assigning assets acquired and liabilities assumed to reporting units
350-20-35-39 3.9.2 Assignment of a contingent consideration asset or liability
350-20-35-39 3A.12 Reorganization of a company’s reporting structure
350-20-35-39 3A.9 Assigning assets acquired and liabilities assumed to reporting units
350-20-35-39 3A.9.2 Assignment of a contingent consideration asset or liability
350-20-35-39A 3A.4.1 Consideration of CTA amounts in the carrying amount of a
reporting unit
350-20-35-40 3.10 Assets or liabilities used in multiple reporting units
350-20-35-40 3A.10 Assets or liabilities used in multiple reporting units
350-20-35-41 3.11 Assigning goodwill to reporting units
350-20-35-41 3A.11 Assigning goodwill to reporting units
350-20-35-47 3.13 Goodwill impairment testing by a subsidiary for standalone reporting
350-20-35-47 3A.13 Goodwill impairment testing by a subsidiary for standalone reporting
350-20-35-57A 3.15 Goodwill impairment testing when a noncontrolling interest exists
350-20-35-57A 3A.15 Goodwill impairment testing when a noncontrolling interest exists
350-20-35-57B 3.15 Goodwill impairment testing when a noncontrolling interest exists
350-20-35-57B 3A.15 Goodwill impairment testing when a noncontrolling interest exists
350-20-35-61 3.19 Deferred income taxes
350-20-35-61 3A.19 Deferred income taxes
350-20-35-62 A.2 Goodwill amortization accounting alternative


350-20-35-65 A.2.2.1 Level of impairment test
350-20-35-66 A.2.2 Simplified impairment test
350-20-35-68 A.2.2.3 Qualitative assessment
350-20-35-73 A.2.2.4 Calculation of impairment loss
350-20-35-75 A.2.2.1 Level of impairment test
350-20-35-79 A.2.2.6 Goodwill impairment test in conjunction with another asset (or asset
group)
350-20-35-80 A.2.2.6 Goodwill impairment test in conjunction with another asset (or asset
group)
350-20-35-83 A.3 Goodwill triggering event evaluation accounting alternative
350-20-35-84 A.3 Goodwill triggering event evaluation accounting alternative
350-20-35-85 A.3.2 Other considerations
350-20-35-86 A.3.3 Effective date, transition and disclosure
350-20-40-1 3.14 Disposal of all or a portion of a reporting unit
350-20-40-1 3A.14 Disposal of all or a portion of a reporting unit
350-20-40-7 3.14.3.2 Accounting by spinnee
350-20-40-7 3A.14.3.2 Accounting by spinnee
350-20-40-8 A.2.3.1 Disposal of a portion of an entity or a reporting unit
350-20-40-9 A.2.3.1 Disposal of a portion of an entity or a reporting unit


350-20-45-4 A.2.4.2 Financial statement presentation
350-20-50-1 3.11.3 Delay in assignment of goodwill
350-20-50-1 3A.11.3 Delay in assignment of goodwill
350-20-50-1 4.2.1 Goodwill
350-20-50-1A 4.2.1 Goodwill
350-20-50-2 4.3.1 Impairment of goodwill
350-20-50-2 4.3.1.1 SEC observations on goodwill impairment analysis and
disclosures
350-20-50-3A A.2.4.3 Disclosure requirements
350-20-50-3B A.3.3 Effective date, transition and disclosure
350-20-50-4 A.2.4.3 Disclosure requirements
350-20-55-1 through 55-9 3.8 Identification of reporting units
350-20-55-1 through 55-9 3A.8 Identification of reporting units
350-20-55-3 3.8.1 The component constitutes a business or a nonprofit activity
350-20-55-3 3A.8.1 The component constitutes a business or a nonprofit activity
350-20-55-4 3.8.2 Discrete financial information
350-20-55-4 3A.8.2 Discrete financial information
350-20-55-5 3.8.3 Reviewed by segment management
350-20-55-5 3A.8.3 Reviewed by segment management


350-20-55-23A 3A.19 Deferred income taxes
350-20-55-23B 3A.19 Deferred income taxes
350-20-55-23C 3A.19 Deferred income taxes
350-20-55-23D 3A.19 Deferred income taxes
350-20-65-2 A.2.4.1 Transition requirements
350-20-65-3 5.1 Effective date for ASU 2017-04
350-20-65-4 A.3.3 Effective date, transition and disclosure
350-20-65-3e A.2.4.1 Transition requirements
350-30-05-1 1.1 Scope
350-30-05-3 1.1 Scope
350-30-05-4 1.1 Scope
350-30-05-5 1.1 Scope
350-30-15-3 1.1 Scope
350-30-15-4 1.1 Scope
350-30-25-3 1.3 Internally developed intangible assets
350-30-25-4 1.1.1 A holder’s accounting for cryptocurrencies


350-30-35-1 2.1 Determining the useful lives of intangible assets
350-30-35-1 2.4 Useful life of an acquired intangible asset that will not be fully
utilized (defensive intangible asset)
350-30-35-2 A.2.1 Determining useful life
350-30-35-3 2.1.2 Renewal and extension rights
350-30-35-3 2.1.2.1 Effect of using an income valuation approach
350-30-35-3 2.1.5 SEC observations on determining the useful life of an intangible
asset
350-30-35-3 A.2.1 Determining useful life
350-30-35-3 C Examples — accounting for intangible assets other than goodwill
350-30-35-3(d) C Examples — accounting for intangible assets other than goodwill
350-30-35-4 2.3 Intangible assets with indefinite lives
350-30-35-5A 2.4 Useful life of an acquired intangible asset that will not be fully
350-30-35-5B 2.4 Useful life of an acquired intangible asset that will not be fully
350-30-35-6 2.2 Intangible assets with finite lives
350-30-35-7 2.2 Intangible assets with finite lives
350-30-35-8 2.2.2 Residual value
350-30-35-9 2.2.3 Periodic evaluation of the estimated useful life
350-30-35-14 2.2.4 Impairment of finite-lived intangible assets
350-30-35-17A 2.3 Intangible assets with indefinite lives
350-30-35-18 2.3.1 Acquired research and development assets
350-30-35-18 2.3.2 Impairment of indefinite-lived intangible assets
350-30-35-18 2.3.3 Unit of accounting
350-30-35-18A 2.3.2 Impairment of indefinite-lived intangible assets
350-30-35-18B 2.3.2 Impairment of indefinite-lived intangible assets


350-30-35-18B 2.3.2.1 Optional qualitative impairment assessment for indefinite-lived
intangible assets
350-30-35-18B 2.3.2.1.1.3 Identify events and circumstances
350-30-35-18C 2.3.2.1 Optional qualitative impairment assessment for indefinite-lived
intangible assets
350-30-35-18C 2.3.2.1.1.6 Additional considerations for performing a qualitative
assessment for an IPR&D asset
350-30-35-18D 2.3.2.1 Optional qualitative impairment assessment for indefinite-lived
intangible assets
350-30-35-18E 2.3.2.1 Optional qualitative impairment assessment for indefinite-lived
intangible assets
350-30-35-18F 2.3.2.1 Optional qualitative impairment assessment for indefinite-lived
intangible assets
350-30-50-1 4.2.2.1 Disclosures in period of acquisition
350-30-50-2 4.2.2.2 Recurring disclosures when statement of financial position is
presented
350-30-50-3 4.3.2 Impairment of intangible assets other than goodwill
350-30-50-3A 4.3.2 Impairment of intangible assets other than goodwill
350-30-50-4 4.2.2.2 Recurring disclosures when statement of financial position is
presented
350-30-55-1B 2.4 Useful life of an acquired intangible asset that will not be fully
350-30-55-1C 2.1 Determining the useful lives of intangible assets
350-30-55-1C 2.1.2.1 Effect of using an income valuation approach
360-10-35-21 2.2.4 Impairment of finite-lived intangible assets


360-10-35-28 2.3.3.1 Allocating an impairment loss to an indefinite-lived intangible
asset when removing the asset from a single accounting unit
805-20-55-25 2.1.3 Considerations in determining the useful life of a customer
relationship intangible asset
805-50-30-5 3.14.2 Assigning goodwill to a business transferred in a common
control transaction
805-50-30-5 3A.14.2 Assigning goodwill to a business transferred in a common
control transaction
830-30-45-13 3.4.1 Consideration of CTA amounts in the carrying amount of a
reporting unit

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Financial reporting developments

1 General provisions ..................................................................................................... 1

2.3.2.4 Impairment considerations for acquired outlicensed arrangements

Financial reporting developments Intangibles — goodwill and other | ii

3.8.2 Discrete financial information ..................................................................................... 73

Financial reporting developments Intangibles — goodwill and other | iii

3A.1.1.2.4 Weigh the identified factors ............................................................. 111

Financial reporting developments Intangibles — goodwill and other | iv

Financial reporting developments Intangibles — goodwill and other | v

A.2.4.2 Financial statement presentation .....................................................................A-18

Financial reporting developments Intangibles — goodwill and other | vi

Financial reporting developments Intangibles — goodwill and other | vii

1.1 Scope (updated July 2021)

Scope and Scope Exceptions

Intangibles — Goodwill and Other — Goodwill

Financial reporting developments Intangibles — goodwill and other | 1

b. How goodwill should be presented in the balance sheet

c. How impairment losses should be presented in the income statement

Scope and Scope Exceptions

c. Subparagraph not used

e. Subparagraph not used

Intangibles — Goodwill and Other — General Intangibles Other than Goodwill

Financial reporting developments Intangibles — goodwill and other | 2

Scope and Scope Exceptions

c. Subparagraph not used

a. Subparagraph not used

b. Subparagraph superseded by Accounting Standards Update No. 2010-07

a. Subparagraph not used

b. Subparagraph superseded by Accounting Standards Update No. 2010-07

Financial reporting developments Intangibles — goodwill and other | 3

c. Except for certain disclosure requirements as noted in paragraph 350-30-15-3, capitalized

1.1.1 A holder’s accounting for cryptocurrencies

Financial reporting developments Intangibles — goodwill and other | 4

US GAAP definitions Classification conclusion

Financial reporting developments Intangibles — goodwill and other | 5

1.1.2 Goodwill accounting alternatives for private companies and not-for-profit

1.1.4 Accounting by producers or distributors of films

1.2 Initial recognition and measurement of intangible assets

Financial reporting developments Intangibles — goodwill and other | 6

Financial reporting developments Intangibles — goodwill and other | 7

1.3 Internally developed intangible assets

Intangibles — Goodwill and Other — General Intangibles Other than Goodwill

Financial reporting developments Intangibles — goodwill and other | 8

2.1 Determining the useful lives of intangible assets

a. The expected use of the asset by the entity.

Financial reporting developments Intangibles — goodwill and other | 9

Implementation Guidance and Illustrations

Financial reporting developments Intangibles — goodwill and other | 10

• The expected use of the intangible asset by the company

Financial reporting developments Intangibles — goodwill and other | 11

2.1.1 Legal rights

2.1.2 Renewal and extension rights

2.1.2.1 Effect of using an income valuation approach

Financial reporting developments Intangibles — goodwill and other | 12

2.1.3 Considerations in determining the useful life of a customer relationship

Financial reporting developments Intangibles — goodwill and other | 13

2.1.5 SEC observations on determining the useful life of an intangible asset

• Uncertain continuity of revenues dependent on retention of key employees

• The “churn” rate of customers