Impairment Testing of Goodwill:
Pursuant to ASC 350, subsequent to the acquisition of a company or its assets, the goodwill value booked from that acquisition must be tested at least annually to ascertain if any impairment to goodwill has occurred. FASB has recognized over the years that the impairment testing process may be inordinately costly for some private companies, and so two updates (Accounting Standard Update or ASU) to the initial impairment codification have been adopted: ASU 2011-08 and ASU 2014-02. ASU 2011-08 allows companies to test for impairment via a qualitative test by comparing the current situation of the company with the situation as of the last impairment test. ASU 2014-02 is a revision for some private companies to elect to amortize goodwill rather than testing annually for impairment.
Cogent Valuation’s clients rely on us to advise them on the valuation of their goodwill and intangible assets to determine whether a full Step 1 impairment analysis is required, when a Step 0 qualitative might be a viable alternative to Step 1, and when the ASU 2014-02 election might be the best choice given their unique situation.