February 2001

FASB Decisions on Treatment of Goodwill

At a public meeting in late December 2000, FASB announced a tentative decision that goodwill recorded on corporate balance sheets, arising from acquisitions completed prior to the date the board issues a final statement on business combinations, should no longer be amortized and instead should be accounted for using an impairment approach. Under this approach, goodwill would be reviewed for impairment (i.e., written down and expensed against earnings) only in the periods in which the recorded value of goodwill is more than its fair value.

At the same meeting, FASB announced its decision to issue the revised limited exposure draft on impairment-only accounting for goodwill in the first quarter of 2001 for a 30-day comment period. FASB is currently addressing whether to retain the pooling-of-interests method of accounting for business combinations and plans to issue a final statement in the second quarter of 2001 that would encompass its decisions on the pooling method and accounting for goodwill and other intangible assets.

Additionally, FASB announced tentative decisions on the following issues:

  • Initial goodwill impairment review (to be determined by a benchmark assessment)
  • Events that might give rise to a goodwill impairment review
  • Accounting for goodwill associated with assets to be disposed of
  • Presentation of goodwill on the balance sheet and goodwill impairment losses on the income statement.

    Details of the tentative decisions are available at www.fasb.org.

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