The 20 year old rules for Goodwill Impairment Testing may get a facelift
- 3 days ago
- 5 min read
FASB returns to goodwill impairment testing as the IASB advances its disclosure and impairment package
In the space of a few weeks this summer both major standard setters returned to one of the most persistent problems in financial reporting. On 29 July 2026 the Financial Accounting Standards Board voted to add a project on targeted improvements to goodwill impairment testing. The International Accounting Standards Board, already deep into redeliberations of its March 2024 Exposure Draft Business Combinations Disclosures Goodwill and Impairment, met on 21 July 2026 and directed staff to refine the package of subsequent performance disclosures.
Together the moves reopen questions that valuation specialists, auditors and boards have lived with for two decades: when must goodwill be tested, at what level of the organisation, and what information must accompany the numbers.
For valuation professionals the stakes are practical rather than theoretical. Changes to the unit of account alter the fair value models that must be prepared. Changes to frequency alter the calendar of work and the weight placed on qualitative assessments. Changes to disclosures alter the evidence that supports purchase price allocations and subsequent impairment conclusions. The two boards are approaching the same residual asset from different angles, yet both paths will reshape the work that sits behind the balance sheet figure.
What the FASB has placed on its agenda
The FASB project is deliberately narrow. Staff recommended two principal changes. First, eliminate the requirement for an annual quantitative impairment test and rely instead on a triggering event model. Second, move the unit of account from the reporting unit to the operating segment. Staff argued that testing at the operating segment level would simplify the model, reduce preparer and audit burden, and align the impairment test more closely with the way management already evaluates performance and reports under the segment guidance.
Board members expressed support for cost reduction. Vice Chair Hillary Salo noted the substantial time companies and auditors devote each year to testing projected financial information and the related controls. At the same time she flagged the practical difficulty of relying solely on triggering events. Chair Richard Jones indicated that the next step is further staff work on cost implications before any exposure draft is prepared.
If adopted, the shift would change valuation practice in several ways. Fair value measurements would be prepared at a higher organisational level, potentially reducing the number of discrete models required. The qualitative assessment would carry greater weight between triggering events. Market capitalisation reconciliations and control premium analyses would need to be reanchored to the new unit of account. Private companies already using the amortization alternative would still need to understand the interaction, because the staff recommendation contemplated broad application.
The IASB path: disclosures first, then targeted impairment relief
The IASB project has a longer history and a broader ambition. After the post implementation review of IFRS 3, investors repeatedly told the Board that impairment losses arrived too late and that information about the subsequent performance of acquisitions was insufficient. The March 2024 Exposure Draft responded with two strands: richer disclosures under IFRS 3 about the strategic rationale, expected synergies and post acquisition performance of business combinations, and targeted amendments to IAS 36 intended to make the impairment test for cash generating units containing goodwill more effective and less complex.
Importantly the IASB has retained the impairment only model. Amortization of goodwill will not return under IFRS. Instead the Board has focused on how goodwill is allocated to cash generating units, how value in use is calculated, and what information users receive about whether an acquisition is delivering the benefits management expected.
Key impairment related proposals that have survived redeliberation include:
Clarifying the allocation of goodwill so that the lowest level at which the business associated with the goodwill is monitored becomes the starting point, with the operating segment acting only as a ceiling.
Allowing restructuring and asset enhancement cash flows to be included in value in use calculations.
Removing the requirement to use pretax cash flows and a pretax discount rate, while requiring disclosure of whether the rate used is pretax or posttax.
Requiring disclosure of the reportable segment in which a cash generating unit containing goodwill sits.
On the disclosure side the Board has spent most of 2025 and 2026 refining the package of performance and expected synergy information. At the May 2026 meeting a narrow majority (seven of thirteen members) tentatively concluded that the benefits of an updated package would justify the costs. Concerns remained.
On 21 July 2026 the Board directed staff to explore further the type of subsequent performance information that should be required. Ten of twelve members agreed with that direction. A decision on overall project direction is still expected in the second half of 2026.
The voting margins matter. Finalising amendments under the IFRS Foundation Due Process Handbook requires a supermajority. The Board has already shrunk and the balance of views is tight. Some of the more ambitious performance disclosures may therefore be narrowed further before any final standard emerges.
Implications for valuation work
Both projects force valuation specialists to revisit assumptions that have become routine.
Under a potential FASB model the move to the operating segment level reduces the granularity of testing. That can shield some goodwill from impairment that would have been recognised under today’s reporting unit approach, but it also concentrates risk.
A single impairment charge at segment level can be large and highly visible. Fair value models will need to incorporate management’s view of the segment as a whole, including shared costs and synergies that currently sit outside individual reporting units.
Under the IASB proposals the inclusion of restructuring and enhancement cash flows in value in use brings the forecast closer to the way many management teams already plan. It also increases the judgement required to distinguish committed plans from aspirational ones. The clarification of goodwill allocation to cash generating units will affect how residual goodwill is mapped after reorganisations, disposals and internal restructurings.
Valuation specialists who prepare the supporting models will need clear documentation of the monitoring level chosen by management.
The enhanced disclosure requirements under IFRS 3 will create a new feedback loop. Quantitative information about expected synergies at the acquisition date, and subsequent performance against those expectations, will become part of the public record. Those same numbers will later be scrutinised when impairment testing is performed. Boards and valuation teams will need consistent definitions of synergy categories, start dates and duration if the disclosures and the impairment models are to remain reconcilable.
Dual reporters face an additional layer of complexity. Differences in unit of account (reporting unit versus cash generating unit versus operating segment) already produce divergent impairment outcomes. The two boards’ current trajectories may widen that gap in the short term even as both claim to be simplifying.
What boards and valuation teams should do now
While both projects remain open, the practical steps are clear.
Map existing goodwill to both reporting units and operating segments so that the cost and effect of any FASB change can be quantified quickly.
Review the cash flow forecasts used in value in use calculations to understand how the inclusion of restructuring and enhancement cash flows would alter headroom.
Strengthen the documentation of how goodwill is monitored internally; that documentation will become more important under either set of proposals.
Align acquisition date synergy estimates with the metrics that will later be used for subsequent performance reporting and for impairment testing.
Goodwill is a residual. It absorbs measurement differences, overpayments, assembled workforce values and expected synergies that cannot be recognised separately. No change in testing frequency or unit of account will eliminate the need for disciplined forecasts, coherent discount rates and transparent reconciliation to market evidence.
We will provide another update in due course.