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FASB drops project on goodwill accounting and disclosure

Written on Jun 28, 2022

FASB has announced it will not consider new rules on how companies account for and disclose goodwill. The announcement is considered a blow to businesses and investors that have sought improvements to the current model. FASB said it would remove the project from its technical agenda but added it could return to it at some point. 

In 2018, the project was added to FASB’s agenda featuring its rule-making priorities, which often lead to new rules U.S. companies need to follow. 

Companies report goodwill when they buy a business for more than the value of its net assets. Under current U.S. rules, an acquiring business must measure the fair value of its reporting units annually and, if that figure is less than the amount recorded on the books, reduce the value of the goodwill. Many companies consider the current model costly and subjective, while investors want even greater disclosure on their goodwill. 

The board based its decision on stakeholder input it received on various accounting models it considered over the course of the four-year project as well as its agenda consultation last year. 

Goodwill has been one of the FASB’s most hot-button issues in recent years. FASB had considered adding amortization, a method it eliminated in 2001, to the existing goodwill model. That method would force companies to write down a set portion of goodwill annually over 10 years or an estimated period of up to 25 years.  

FASB also considered no longer requiring acquiring businesses to separately measure the value of customer relationships when calculating the intangible assets they gained from a transaction. 

Many investors have criticized the amortization of goodwill saying it doesn’t help them conduct their investment analysis. Investors have also said they want FASB to work closely with its international counterpart, the IASB, to align any rule changes. Companies’ calculation of goodwill impairments under U.S. accounting rules and international financial reporting standards are largely similar. 

IASB staff have said there are plans to ask the board to decide whether to move its goodwill project from its current research phase to a standard-setting phase in the fourth quarter.