FASB Scraps Project on Goodwill Accounting, Disclosure

The FASB in 2018 added the project to the 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 seven-member 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, a FASB spokeswoman said.

Companies frequently report goodwill impairment charges on their balance sheets. Healthcare services firm
Cardinal Health Inc.
last year took a $1.3 billion pretax charge—the largest impairment by a single U.S. company that year—as higher commodities and transportation costs weighed on profits. Businesses have also started racking up goodwill write-downs from exiting or cutting back operations in Russia following the country’s invasion of Ukraine in February.

Goodwill has been one of the FASB’s most hot-button issues in recent years. The standard setter for a period leaned toward 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.

The 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 FASB’s recent leanings, saying the amortization of goodwill doesn’t help them conduct their investment analysis. Investors have also said they want the FASB to work closely with its international counterpart, the International Accounting Standards Board, to align any rule changes. Companies’ calculation of goodwill impairments under U.S. accounting rules and international financial reporting standards are largely similar.

The staff of the IASB, which sets standards for many jurisdictions outside the U.S., in May said it 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. The IASB declined to comment on the FASB’s move on Wednesday.

The FASB may add the project back if it receives more information or encounters a new reason for making changes, Chairman Rich Jones said.

“This would be a very significant change,” Mr. Jones said. “I think you need a case for change. As I see it, as this is stacking up, it doesn’t assemble.”

Write to Mark Maurer at [email protected]