The proposed guidance was the result of the FASB standard update on testing goodwill for impairment. The FASB brought in the notion of “more likely than not” (that is, a likelihood of more than 50 percent) when using qualitative factors in determining goodwill for impairment. As discussed in our last Advisor, if you determine that there is less than a “more likely than not” likelihood for impairment, then there is no requirement to perform the quantitative test for goodwill.

The proposed amendment by the FASB would require the same logic used by the FASB goodwill impairment standard update for indefinite-lived intangible assets. Therefore, the proposed amendment would allow an entity to make a qualitative evaluation about the likelihood of impairment of an indefinite-lived intangible asset to determine whether it should apply the quantitative test.

WISS recommends, for those entities using the qualitative approach, that management document the rationale on why an indefinite-lived intangible asset should or should not be impaired. If management has determined, on the qualitative approach, that the indefinite-lived intangible asset should be impaired, management should perform the quantitative test to determine the amount of impairment.

When would the amendments be effective?

The proposed amendment is expected to be effective for annual impairment tests performed for fiscal years beginning after June 15, 2012. Early adoption would be permitted. The comment period has ended on April 24, 2012 and the Board believes the proposed amendment will be published in June 2012.