Under an enterprise premise, debt is excluded from the liabilities available for assignment to a reporting unit under an equity premise, debt is included in those liabilities. GAAP does not prescribe whether an entity should use an enterprise premise or an equity premise in assigning assets and liabilities to a reporting unit to determine its carrying amount. Entities will, however, be required to disclose any reporting units with zero or negative carrying amounts and the respective amounts of goodwill allocated to those reporting units. Therefore, as the FASB notes in the ASU’s Basis for Conclusions, the goodwill of reporting units with zero or negative carrying values will not be impaired, even when conditions underlying the reporting unit indicate that goodwill is impaired. The ASU does not change the qualitative assessment however, it removes “the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test.” Instead, all reporting units, even those with a zero or negative carrying amount will apply the same impairment test. Thus, the ASU permits an entity to record a goodwill impairment that is entirely or partly due to a decline in the fair value of other assets that, under existing GAAP, would not be impaired or have a reduced carrying amount. The ASU requires goodwill impairments to be measured on the basis of the fair value of a reporting unit relative to the reporting unit’s carrying amount rather than on the basis of the implied amount of goodwill relative to the goodwill balance of the reporting unit. To perform step 2, an entity must “assign the fair value of a reporting unit to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination.” Accordingly, performing step 2 can sometimes result in significant cost and complexity since the “fair value of goodwill can be measured only as a residual and cannot be measured directly.” In the Financial Accounting Foundation’s (FAF’s) report on its postimplementation review of FASB Statement 141 (revised 2007), the FAF discussed the cost and complexity associated with performing step 2. The process of measuring the implied fair value of goodwill is currently referred to as step 2 of the goodwill impairment test. Under the current guidance in ASC 350, impairment of goodwill “is the condition that exists when the carrying amount of goodwill exceeds its implied fair value.” The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. Before evaluating whether to make any additional changes to the model for the subsequent accounting for goodwill, the Board will evaluate the effectiveness of ASU 2017-04 and continue to monitor the IASB’s projects on goodwill and impairment.

ASU 2017-04 was issued in conjunction with phase 1 of the project however, on October 10, 2016, the Board decided to suspend deliberations of phase 2 and move that portion of the project to its research agenda. In response to the feedback, the FASB added to its agenda a two-phase goodwill simplification project. As noted in the Summary of ASU 2017-04, feedback received by the Board on that PCC accounting alternative indicated that many public business entities and not-forprofit entities had similar concerns about the cost and complexity of the annual goodwill impairment test.

In November 2013, the FASB issued a Private Company Council (PCC) accounting alternative that allows nonpublic business entities to amortize goodwill and perform a simplified impairment test.

Goodwill impairment writedown gaap