3.5 Qualitative Assessment
ASC 350-20
35-67
Upon the occurrence of a triggering event, an entity may
assess qualitative factors to determine whether it is more
likely than not (that is, a likelihood of more than 50
percent) that the fair value of the entity (or the reporting
unit) is less than its carrying amount, including goodwill.
Paragraph 350-20-35-3C(a) through (g) includes examples of
those qualitative factors.
35-68
Because the examples included in paragraph 350-20-35-3C(a)
through (g) are not all-inclusive, an entity shall consider
other relevant events and circumstances that affect the fair
value or carrying amount of the entity (or of the reporting
unit) in determining whether to perform the quantitative
goodwill impairment test. An entity shall consider the
extent to which each of the adverse events and circumstances
identified could affect the comparison of its fair value
with its carrying amount (or of the reporting unit’s fair
value with the reporting unit’s carrying amount). An entity
should place more weight on the events and circumstances
that most affect its fair value or the carrying amount of
its net assets (or the reporting unit’s fair value or the
carrying amount of the reporting unit’s net assets). An
entity also should consider positive and mitigating events
and circumstances that may affect its determination of
whether it is more likely than not that its fair value is
less than its carrying amount (or the fair value of the
reporting unit is less than the carrying amount of the
reporting unit). If an entity has a recent fair value
calculation (or recent fair value calculation for the
reporting unit), it also should include that calculation as
a factor in its consideration of the difference between the
fair value and the carrying amount in reaching its
conclusion about whether to perform the quantitative
goodwill impairment test.
35-69
An entity shall evaluate, on the basis of the weight of
evidence, the significance of all identified events and
circumstances in the context of determining whether it is
more likely than not that the fair value of the entity (or
the reporting unit) is less than its carrying amount. None
of the individual examples of events and circumstances
included in paragraph 350-20-35-3C(a) through (g) are
intended to represent standalone events or circumstances
that necessarily require an entity to perform the
quantitative goodwill impairment test. Also, the existence
of positive and mitigating events and circumstances is not
intended to represent a rebuttable presumption that an
entity should not perform the quantitative goodwill
impairment test.
35-70
An entity has an unconditional option to bypass the
qualitative assessment described in paragraphs 350-20-35-67
through 35-69 and proceed directly to a quantitative
calculation by comparing the entity’s (or the reporting
unit’s) fair value with its carrying amount (see paragraphs
350-20-35-72 through 35-78). An entity may resume performing
the qualitative assessment upon the occurrence of any
subsequent triggering events.
35-71
If, after assessing the totality of events or circumstances
such as those described in paragraph 350-20-35-3C(a) through
(g), an entity determines that it is not more likely than
not that the fair value of the entity (or the reporting
unit) is less than its carrying amount, further testing is
unnecessary.
35-72
If, after assessing the totality of events or circumstances
such as those described in paragraph 350-20-35-3C(a) through
(g), an entity determines that it is more likely than not
that the fair value of the entity (or the reporting unit) is
less than its carrying amount or if the entity elected to
bypass the qualitative assessment in paragraphs 350-20-35-67
through 35-69, the entity shall determine the fair value of
the entity (or the reporting unit) and compare the fair
value of the entity (or the reporting unit) with its
carrying amount, including goodwill. A goodwill impairment
loss shall be recognized if the carrying amount of the
entity (or the reporting unit) exceeds its fair value.
When a triggering event occurs, a private company or NFP that has
elected to amortize goodwill has the option (similarly to PBEs) of first performing
a qualitative assessment (step 0) to test goodwill for impairment. (See Section 2.3 for guidance on
performing the qualitative assessment.) Depending on the results of the qualitative
assessment, the entity may be able to avoid performing a quantitative impairment
test. Specifically, an entity that performs the qualitative assessment is permitted
to assess whether it is more likely than not (i.e., a likelihood of more than 50
percent) that the fair value of the entity (or reporting unit) is less than its
carrying amount. If so, the entity is required to perform the quantitative
impairment test (step 1) (see Section 2.4).
Alternatively, if an entity that performs the qualitative assessment concludes that
it is not more likely than not that the fair value of the entity (reporting unit) is
less than its carrying amount, it does not need to perform the quantitative
impairment test.
Because the qualitative assessment is optional, an entity may bypass it for any or
all of its reporting units (if testing is performed at the reporting unit level) and
in any or all periods and may instead perform the quantitative test.