Goodwill is assigned to an entity’s reporting units, defined as the same as, or one level below, an operating segment. The determination of reporting units is based on a segment reporting structure.

Goodwill is tested for impairment at least on an annual basis and between annual tests if an event occurs or circumstances change that may indicate an impairment.

When performing the goodwill impairment test, an entity may first assess qualitative factors to determine whether the quantitative goodwill impairment test is necessary. If the entity determines, based on the qualitative assessment, that it is more likely than not that the fair value of a reporting unit is below its carrying amount, the impairment test is performed. An entity can bypass the qualitative assessment for any reporting unit in any period and proceed directly to the quantitative assessment.

Goodwill is allocated to a cash-generating unit (CGU) or group of CGUs (not larger than an operating segment) based on how goodwill is monitored for internal management purposes. A CGU is the smallest identifiable group of assets that generates cash inflows largely independently of other assets or groups of assets.

Goodwill is tested for impairment at least on an annual basis and between annual tests if an event occurs or circumstances change that may indicate an impairment.

Goodwill impairment testing is performed using a one-step approach:

The recoverable amount of the CGU or group of CGUs (i.e., the higher of its fair value less costs of disposal and its value in use) is compared with its carrying amount.

Any impairment loss is recognized as the excess of the carrying amount over the recoverable amount.

Prior to adoption of ASU 2017-04, goodwill is tested for impairment using a two-step test:

Any loss recognized is not permitted to exceed the carrying amount of goodwill. The impairment charge is included in operating income.

For reporting units with zero or negative carrying amounts, an entity must first perform a qualitative assessment to determine whether it is more likely than not that a goodwill impairment exists. An entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that goodwill impairment exists.

Private companies have the option to amortize goodwill on a straight-line basis over a period of up to ten years, and apply a trigger-based, single-step impairment test at either the entity level or the reporting unit level at the company’s election.

When testing a CGU to which goodwill has been allocated for impairment, there may be an impairment indicator related to an asset within the unit containing the goodwill. In such circumstances, the entity tests the asset for impairment first and recognizes any impairment loss for that asset, before testing the CGU containing the goodwill for impairment. Then, if there is an impairment loss on the CGU, the impairment loss is allocated first to goodwill and then on a pro rata basis to the other assets of the CGU or group of CGUs to the extent that the impairment loss exceeds the carrying value of goodwill.