Impairment: Indefinite-lived intangibles and goodwill

Accounting for the impairment of goodwill and other indefinite-lived intangible assets can be challenging for companies. When evaluating impairment, entities must perform multiple steps in a designated sequence, or a company risks not recognizing an impairment or recognizing an inappropriate amount. What’s more, each step in the evaluation requires an entity to exercise judgment.

Under U.S. GAAP, an entity is generally required to assess indefinite-lived intangible assets, including goodwill, for impairment at least annually and then additionally on an interim basis if a “triggering event” occurs. A “triggering event” is when the entity determines that it is “more likely than not” that the carrying amount of an indefinite-lived intangible asset is less than its fair value or, in the case of goodwill, the carrying amount of a reporting unit is less than its fair value. Determining whether a triggering event occurs, as well as determining the fair value of an indefinite-lived intangible asset (or a reporting unit for goodwill) to measure impairment, calls for using judgment. Although the guidance on recognizing the impairment of goodwill and the impairment of indefinite-lived intangible assets is in many ways similar, there are notable distinctions.

Grant Thornton’s Viewpoint, “Impairment: Indefinite-lived intangibles and goodwill,” tackles this difficult subject for companies. It summarizes the FASB guidance on accounting for the impairment of goodwill under ASC 350-20 and the impairment of indefinite-lived intangible assets under ASC 350-30, as well as several FASB Accounting Standards Updates that introduce amendments designed to simplify the impairment testing process (such as ASU 2017-04, which eliminates Step 2 of the goodwill impairment test). We also discuss the amendments under ASU 2021-03, which allow nonpublic business entities to elect to evaluate goodwill triggering events, in certain circumstances, at the end of the reporting period instead of during the reporting period.

This Viewpoint features direct citations and examples from the FASB, as well as insights and illustrations specifically developed by Grant Thornton professionals, to unravel this complex topic.

Download an easy-to-read version of our Viewpoint.