Constituent comments received by the FASB in response to its exposure draft on goodwill impairment testing indicate there is a split between financial statement preparers and their auditors.  Preparers overwhelmingly favor qualitative goodwill testing and believe the FASB's proposed Accounting Standards Update will reduce the costs and complexity associated with testing goodwill for impairment.  Accounting and valuation firms expressed mixed opinions with smaller firms tending to support qualitative testing and larger, national firms tending to oppose qualitative testing. 

The purpose of the qualitative test is to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount.  Concerns and comments about the qualitative test raised by leading audit and valuation firms include:

·         The qualitative test may not meet the objectives of reducing costs and complexity because evaluating a subjective qualitative assessment may require more effort than evaluating a quantitative assessment.

·         Because of its inherent subjectivity, auditing and documenting the qualitative assessment will be more difficult.

·         Management may not have the expertise or experience to perform a qualitative test.

·         Additional disclosures and implementation guidance would be needed.

·         Revising current standards allowing entities to carry forward a reporting unit's fair value determination may be more effective than a qualitative test.

·         The qualitative test assesses deterioration relative to a baseline measurement of fair value.  The baseline measurement would likely have to be quantitative.

·         The "more likely than not" (50%) threshold for determining impairment is too low, which will result in further quantitative testing.

·         The "more likely than not" threshold presents a risk that the recognition of goodwill impairment losses would be delayed.

·         Auditors would prepare "shadow" calculations to provide support for qualitative assessments.

·         Determining the fair value of a reporting unit can be complex when entities have multiple reporting units that share assets and allocate costs.  A qualitative goodwill impairment test would not adequately consider these intercompany allocations.

·         Permitting non-public entities to amortize goodwill would be a practical alternative to reduce the costs of testing goodwill for impairment.

·         If judgments involved in the qualitative test are routinely challenged by auditors, preparers are likely to perform a quantitative analysis to support their conclusion.