Every company that carries goodwill on its balance sheet must evaluate whether a triggering event has occurred at each interim reporting date, not just at the annual impairment testing date. ASC 350-20-35-3C makes this explicit: an entity shall assess relevant events and circumstances at each reporting date to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.
Q2 2026 is not a routine interim period for this assessment. The combination of tariff-driven cost increases that began in early 2025 and ran through February 2026, IEEPA tariff cessation, ongoing Section 301 and Section 232 exposure, supply chain restructuring costs, and customer demand shifts have created exactly the pattern of operating deterioration and business environment changes that ASC 350-20-35-3C identifies as triggering event indicators.
Controllers working through the Q2 2026 close need a current-period triggering event memo that addresses this specific environment. The SEC and PCAOB have both flagged in 2025 and 2026 that weak interim assessment documentation is a persistent deficiency in goodwill impairment processes. A memo that identifies the relevant Q2 indicators, applies the more-likely-than-not standard to each, and documents the conclusion is not optional. It is what the external auditor will request and what a comment letter will demand if one arrives.
This post covers the ASC 350-20-35-3C framework precisely, which Q2 2026-specific events and conditions map to which indicators, how to apply the more-likely-than-not standard with specificity, and what the Q2 10-Q disclosure requirements are if no triggering event is concluded.
What Is a Goodwill Impairment Triggering Event Under ASC 350?
Under ASC 350-20, companies are required to test goodwill for impairment at least annually at the same date each year. The annual test can be performed using a qualitative assessment (Step Zero), which concludes that no quantitative test is required if it is more likely than not that the fair value of the reporting unit exceeds its carrying amount, or a quantitative test, which requires measuring the fair value of the reporting unit and comparing it to its carrying amount.
Between annual tests, ASC 350-20-35-3C requires that the entity assess relevant events and circumstances to determine whether a triggering event has occurred that would require an interim impairment test. A triggering event occurs when it is more likely than not, meaning a likelihood of more than 50%, that the carrying amount of a reporting unit exceeds its fair value. If a triggering event is identified, an interim quantitative goodwill impairment test is required.
ASC 350-20-35-3C provides a list of examples of events and circumstances that may indicate a triggering event. The list is explicitly non-exhaustive: ASC 350-20-35-3F requires entities to consider other relevant events and circumstances that affect the fair value or carrying amount of a reporting unit, in addition to the examples listed. The PwC Business Combinations guide confirms this: the indicators listed in ASC 350-20-35-3C are examples, and do not comprise an exhaustive list.
The specific examples in ASC 350-20-35-3C are grouped into four categories:
Macroeconomic conditions: A significant adverse change in economic conditions, including deterioration in general economic conditions, limitations on accessing capital, or other developments in equity and credit markets.
Industry and market considerations: A significant adverse change in the business climate, legal factors, or the regulatory environment affecting the reporting unit. Loss of a key contract. Increased competition. Declining market share.
Cost factors: Significant adverse changes in the cost structure of the reporting unit, including a significant increase in raw materials, labour, or other costs that is expected to have a continued negative effect on earnings and cash flows.
Overall financial performance: Negative or declining cash flows, or a loss from continuing operations. A sustained decrease in share price in absolute terms and relative to peers. Current-period operating losses combined with a history of operating losses or a projection or forecast that demonstrates continuing losses associated with the reporting unit.
The triggering event assessment must be performed at the reporting unit level, not at the consolidated company level. A consolidated company can have a triggering event in one reporting unit while other reporting units are performing within expectations.
Why Q2 2026 Is a Higher-Risk Interim Period for Triggering Events
The triggering event assessment at Q2 2026 is more demanding than a typical interim assessment for a specific reason: Q2 2026 covers a period of significant and unusual operating environment change for most import-dependent businesses and many of their customers.
Three Q2 2026-specific factors make the assessment more complex than it would be in a stable environment.
The tariff cycle is not linear. Q2 2026 covers multiple distinct tariff phases: IEEPA tariff costs incurred through February 20 (the Supreme Court ruling date), the period of IEEPA tariff cessation beginning February 20, and the ongoing Section 301 and Section 232 tariff exposure throughout the quarter. For companies where the IEEPA tariff costs were the primary driver of cost increases in Q4 2025 and Q1 2026, Q2 2026 may actually show margin improvement relative to Q1. That improvement needs to be assessed carefully: if the improvement reverses the triggering event conditions that existed at Q1, the triggering event analysis changes. If the improvement is partly masked by ongoing Section 301 costs that did not disappear with IEEPA, the assessment needs to distinguish between the IEEPA relief and the persistent Section 301 exposure.
Supply chain restructuring costs fall in Q2 for many companies. Companies that accelerated supplier diversification in response to tariff exposure incurred restructuring and transition costs in Q2 2026 that would not appear in Q2 2025 comparables. These costs are exactly the type of significant adverse change in cost structure that ASC 350-20-35-3C identifies as a potential triggering event indicator, particularly if they are expected to have a continued negative effect on earnings and cash flows going forward.
Customer demand shifts are real and measurable in Q2. End-market demand in tariff-sensitive industries including consumer electronics, industrial equipment, construction materials, and automotive showed measurable shifts in Q2 2026 as consumers and businesses adjusted purchasing behaviour in response to the tariff environment. For companies whose reporting units are concentrated in these end markets, reduced revenue or volume below management's Q2 projections is a triggering event indicator under the overall financial performance category.
The combination of these three factors means that a controller who relies on the prior quarter's triggering event memo or runs a generic checklist without addressing these Q2-specific developments is not performing the assessment that ASC 350-20-35-3C requires.
The Complete ASC 350 Triggering Event Checklist for Q2 2026
This checklist addresses the full range of ASC 350-20-35-3C categories with Q2 2026-specific applications. The assessment must be performed at the reporting unit level. Complete a separate assessment for each reporting unit that carries allocated goodwill.
Macroeconomic conditions:
Is the general economic environment in the reporting unit's primary markets showing significant adverse change compared to the assumptions embedded in the most recent annual goodwill impairment test? For reporting units with US manufacturing or import-dependent cost structures, the tariff environment through Q2 2026 represents an adverse macroeconomic change. The question is whether that change is material enough, and sustained enough, to affect fair value.
Has access to credit or capital changed materially for the reporting unit or its customers since the annual test? Rising interest rates, tightened credit conditions, or reduced access to capital markets for the reporting unit's primary customers affect both the reporting unit's revenue and the discount rate used to estimate its fair value.
Industry and market considerations:
Has competition in the reporting unit's markets increased materially? Companies that have benefited from competitive pricing advantages may face new entrants or expanded capacity from non-tariffed competitors.
Has the regulatory environment affecting the reporting unit changed? For reporting units with exposure to trade policy, the tariff changes are regulatory environment changes within the meaning of ASC 350-20-35-3C.
Has the reporting unit lost a key contract, major customer, or distribution channel?
Is there a measurable decline in the reporting unit's market share relative to the prior period or relative to the assumptions embedded in the annual test?
Cost factors:
Have raw materials, imported components, or logistics costs increased materially compared to the assumptions in the annual test? If Section 301 tariffs are adding to the cost structure of a reporting unit and those costs are expected to persist, this is a cost factor triggering event indicator.
Are supply chain restructuring costs incurred in Q2 expected to continue into H2 2026? Costs that are one-time in nature are less likely to constitute a triggering event indicator than costs that will have a continued negative effect on earnings.
Has the labour cost structure of the reporting unit changed materially?
Overall financial performance:
Did the reporting unit's actual Q2 2026 results fall materially below the projections or forecasts that were used in the most recent annual goodwill impairment test?
Is the reporting unit generating operating losses or negative cash flows in Q2 2026 that were not projected in the annual test?
Has the consolidated entity's stock price declined materially in Q2 2026 in both absolute terms and relative to industry peers? A sustained decline in market capitalisation below book value is the most widely recognised triggering event indicator for public companies.
Are there downward adjustments to H2 2026 or full-year 2026 forecasts for the reporting unit that differ materially from the projections used in the annual test?
Carrying amount changes:
Has the carrying amount of the reporting unit increased since the annual test? An acquisition, a capitalisation of internally developed assets, or other events that increase the carrying amount without a corresponding increase in fair value can create a triggering event even in the absence of operating deterioration.
Tariff-Driven Indicators: When Does Margin Compression Become a Triggering Event?
Margin compression alone does not automatically constitute a triggering event. The question is whether the margin compression, in combination with other circumstances, makes it more likely than not that the carrying amount of the reporting unit exceeds its fair value. This requires judgment, and the judgment must be documented with specificity.
The analysis starts at the reporting unit level. A consolidated-level gross margin decline of 200 basis points from Q2 2025 to Q2 2026 does not by itself answer the triggering event question for any specific reporting unit. The analysis must attribute the margin compression to specific reporting units, assess whether that compression is expected to persist or reverse, and estimate whether the resulting effect on projected cash flows would, if carried forward into a fair value analysis, reduce the fair value of the reporting unit below its carrying amount.
Four specific tariff-driven scenarios represent the highest-risk triggering event situations in Q2 2026.
Scenario 1: Reporting unit with concentrated China-sourced inputs. If a reporting unit's cost structure is heavily weighted toward components sourced from China subject to Section 301 tariffs at 25% or higher, and those tariffs were incorporated into costs in 2025 and 2026 at levels higher than the assumptions used in the annual impairment test, the cost factor indicator is clearly present. The additional question is whether the reporting unit has the pricing power to pass those costs through, and whether the annual test's fair value calculation assumed a lower cost structure than what is now embedded in actual results.
Scenario 2: Reporting unit with customers experiencing tariff-driven demand reduction. For B2B reporting units whose customers are themselves import-dependent manufacturers, tariff costs flowing through the supply chain to end customers can reduce demand for the reporting unit's products or services even if the reporting unit itself is not a direct tariff payer. If Q2 2026 revenue for the reporting unit fell below the forecast in the annual test because customers reduced orders in response to their own tariff exposure, this is an overall financial performance indicator combined with an industry and market condition indicator.
Scenario 3: Reporting unit that missed Q2 internal forecast by a material margin. ASC 350-20-35-3C does not provide a numerical threshold for what constitutes a material miss relative to forecast. The Intelek analysis confirms that regulators specifically target companies that use overly optimistic management projections to support passing impairment tests. If a reporting unit's Q2 2026 actual results fell significantly below the projections used in the annual test, and those projections have not been revised, the gap between actual and projected performance is a triggering event indicator regardless of whether tariffs are the specific cause.
Scenario 4: Reporting unit with supply chain restructuring costs that compress H2 margins. If tariff-driven supply chain restructuring costs incurred in Q2 are expected to continue in Q3 and Q4 (transition costs, dual-sourcing premium, expedited logistics), and if those costs were not reflected in the annual test's projections, the cost factor indicator is present and the annual test's fair value calculation may not reflect the current cost outlook.
Stock Price Decline: When Does a Q2 Market Drop Require an Interim Test?
The sustained decrease in share price indicator in ASC 350-20-35-3C is the most visible triggering event indicator for publicly traded companies. The Deloitte analysis confirms that it is one of the most common triggering events in practice: a sustained decrease in share price in both absolute terms and relative to peers.
Two qualifications apply. First, the decline must be sustained, not transient. A single-day or single-week decline in connection with a market-wide event is less likely to constitute a triggering event than a decline that persists over multiple quarters. Second, the decline must be assessed in both absolute terms and relative to peers. A company whose stock has declined 20% in Q2 2026 while the broad market declined 22% is in a different position from a company that declined 20% while its industry peers declined 5%.
The most significant indicator within the stock price category is when the company's market capitalisation falls below its book value (total stockholders' equity). The Finrep analysis of SEC comment letters in this area confirms the SEC staff's specific comment on this scenario: when a company's net book value currently exceeds its market capitalisation, the staff treats this as strong evidence that an interim test may be required, and has specifically asked companies in comment letters to explain why no interim test was performed.
For companies that experienced Q2 2026 stock price declines in connection with tariff-related earnings disappointments, the stock price indicator needs to be assessed with reference to the duration and severity of the decline, the relationship to peer performance, and whether the decline has been accompanied by analyst forecast reductions that signal the market's view of lasting rather than temporary impairment of the reporting unit's value.
Supply Chain Restructuring Costs: When Does a Reorganization Trigger an Impairment Assessment?
Supply chain restructuring costs are a cost factor indicator under ASC 350-20-35-3C when they represent a significant adverse change in the cost structure of the reporting unit that is expected to have a continued negative effect on earnings and cash flows.
The critical question is the expected duration. Restructuring costs that are genuinely one-time, such as termination costs for a specific vendor contract that have been fully incurred and will not recur, are less likely to constitute a triggering event indicator than restructuring costs that will persist into future periods, such as ongoing premium costs for a new, more expensive supplier chosen for geographic reasons rather than cost efficiency.
The distinction matters for the triggering event analysis because fair value is a forward-looking measure. The fair value of a reporting unit is determined by discounting the expected future cash flows. Restructuring costs that have already been incurred and will not recur do not reduce the present value of future cash flows. Restructuring costs that represent a permanent increase in the ongoing cost structure do reduce future cash flows and therefore reduce fair value.
For Q2 2026, most supply chain restructuring costs fall into a hybrid category: some are truly transitional (the one-time cost of qualifying a new supplier or transitioning production tooling) and some represent a permanent cost increase (ongoing logistics cost for a more expensive but less tariff-exposed sourcing geography). The triggering event memo should distinguish between these categories and assess only the persistent cost changes against the fair value implications.
In addition to the cost factor indicator, supply chain restructuring may trigger the industry and market conditions indicator if the restructuring reflects a market-wide change in the competitive or regulatory environment that is affecting the entire reporting unit's industry. If the company's primary competitors are similarly restructuring their supply chains and if the resulting industry-wide cost increases are expected to compress margins across the sector, the market conditions indicator is also present.
Customer Concentration Loss: The Indicator Most Controllers Overlook
Customer concentration is an indicator explicitly called out in ASC 350-20-35-3C under the industry and market considerations category. Loss of a key contract or distribution channel is listed as a potential triggering event.
Controllers often focus the triggering event assessment on macroeconomic indicators and financial performance metrics and underweight the customer-specific indicators. In Q2 2026, the customer concentration indicator is elevated for two specific reasons.
First, tariff-driven supply chain realignment has led some customers to deliberately concentrate their purchasing with suppliers that have less tariff exposure, reducing their purchases from suppliers with higher tariff burdens. A reporting unit that lost volume from a top-tier customer in Q2 2026 because that customer was consolidating purchasing with a less tariff-exposed competitor faces both a customer concentration event and an industry and market conditions change.
Second, Q2 2026 saw some businesses restructure or reduce their operations in tariff-sensitive areas, including capacity reductions in manufacturing, construction, and consumer goods. A reporting unit whose customer base includes companies making those capacity reductions may see reduced demand that is not purely temporary.
The key question for the triggering event assessment is whether the customer loss or volume reduction is expected to be permanent or temporary. A customer that reduced orders in Q2 because of tariff uncertainty but is expected to restore normal purchasing volumes in H2 when the tariff environment stabilises is a different situation from a customer that has permanently consolidated purchasing with another supplier. The assessment must be specific about which customers are involved, what the evidence is about the permanence of the change, and how the affected reporting unit's projected future cash flows should be adjusted.
What Does a "More Likely Than Not" Standard Actually Require?
The more-likely-than-not standard under ASC 350-20-35-3C is sometimes interpreted as a high threshold, as if it requires near-certainty of impairment before an interim test is triggered. That interpretation is incorrect. More likely than not means a probability of more than 50%. The Grant Thornton analysis confirms: the phrase more likely than not is generally understood to mean a likelihood of more than 50%.
This is a meaningful distinction for the triggering event memo. The question is not whether impairment has occurred or whether the controller is confident that impairment will be confirmed by a full quantitative test. The question is whether, based on all available evidence, there is a greater than 50% probability that the carrying amount of the reporting unit exceeds its fair value. If the answer is yes, an interim quantitative test is required.
The standard is qualitative but it is not impressionistic. The memo must assess specific evidence: the magnitude of the adverse changes observed in Q2 2026, the proximity of the reporting unit's carrying amount to the fair value estimated in the most recent annual test, the sensitivity of the annual test's fair value conclusion to the specific changes now observed, and the headroom between fair value and carrying amount at the most recent annual test date.
Headroom is the key variable. A reporting unit that passed its annual test by a significant margin (fair value 30% or more above carrying amount) may not trigger an interim test even if Q2 2026 results were materially below projections, because the magnitude of the adverse change is unlikely to have reduced fair value enough to close a 30% headroom gap. A reporting unit that passed by a narrow margin (fair value 5% to 10% above carrying amount) may trigger an interim test based on relatively modest adverse changes, because even a small reduction in fair value could close the gap and produce a carrying amount that exceeds fair value.
The headroom analysis is the connection between the triggering event assessment and the annual impairment test. Controllers who cannot answer the question "what was the headroom at our last annual test for each reporting unit?" are not equipped to complete a defensible Q2 triggering event assessment.
What to Disclose in Your Q2 10-Q if You Concluded No Triggering Event Existed
The absence of a triggering event conclusion is not a silence in the Q2 10-Q. If the triggering event indicators were present and the company concluded that no triggering event occurred, that conclusion needs to be disclosed if goodwill is material to the financial statements.
Under SEC Staff Accounting Bulletin Topic 6.G and the critical accounting estimate guidance in FR-72, companies must provide MD&A disclosure of the critical assumptions underlying their goodwill impairment assessment when goodwill is a critical accounting estimate. For companies where Q2 2026 produced conditions that required active triggering event analysis, the MD&A critical accounting estimate discussion should describe:
That the company performed a triggering event assessment at June 30, 2026.
The specific events and circumstances considered in that assessment, including any tariff-driven cost increases, supply chain restructuring costs, customer demand shifts, or stock price changes that were evaluated.
The basis for the conclusion that no triggering event occurred, including a reference to the headroom at the most recent annual impairment test and the sensitivity of the fair value estimate to the changes observed in Q2.
The SEC comment letter record specifically includes letters asking companies to explain why no interim test was performed in periods where observable conditions appeared to warrant one. The Intelek analysis confirms that regulators are specifically targeting companies for failing to document why a stock price drop or earnings miss did not trigger an interim test.
The Q2 10-Q disclosure for a company that concluded no triggering event existed should be specific enough to demonstrate that the conclusion was the product of an active, documented assessment rather than an assumption that no triggering event existed because no impairment was obvious.
What SEC Comment Letters Have Said About Goodwill Impairment Disclosures
The SEC staff's comment letter activity on goodwill impairment has been consistent in its focus areas across 2024 and 2025. The Intelek analysis summarises the four patterns the PCAOB and SEC target:
Too little, too late. Companies that do not recognise impairment until a massive write-down is unavoidable, after multiple interim periods where observable conditions would have supported an earlier interim test conclusion. The staff's comment in this pattern asks the company to explain the triggering event assessment performed in each prior quarter where the conditions existed, and to explain why those assessments did not conclude a triggering event had occurred.
Forecast optimism. Management projections that historically miss targets but are still used to support passing impairment tests. The staff asks for the company's actual versus projected performance for each reporting unit over the periods preceding the impairment charge, and for an explanation of why the projections used in the impairment test were not revised downward before the charge was recorded.
Discount rate consistency. Using a weighted average cost of capital that is inconsistent with the risks inherent in the cash flow projections. A company that projects above-market growth rates but applies a discount rate that does not reflect the risk of achieving those rates produces an upward-biased fair value estimate. The staff asks for the basis for the discount rate and the relationship between the discount rate and the risk profile of the cash flow projections.
Triggering event documentation. Failure to document why a stock price drop, earnings miss, or cost increase did not trigger an interim test. The most common comment in this category is a straightforward observation that the company's net book value exceeded its market capitalisation for one or more quarters preceding the impairment charge, and a request to explain the triggering event assessment for each of those quarters and why an interim test was not performed.
The consistent thread is that the staff expects affirmative, documented evidence that the triggering event assessment was performed with specificity at each interim date. A conclusion that no triggering event existed is not problematic. A conclusion that appears to have been reached without engaging with the specific conditions that existed in the period is the issue.
Frequently Asked Questions
What is an ASC 350 goodwill impairment triggering event?
A triggering event under ASC 350-20-35-3C is any event or change in circumstances that makes it more likely than not, meaning a probability greater than 50%, that the carrying amount of a reporting unit exceeds its fair value. Companies must assess for triggering events at each interim reporting date, not only at the annual impairment testing date. If a triggering event is identified, an interim quantitative goodwill impairment test is required. The indicators listed in ASC 350-20-35-3C include macroeconomic deterioration, adverse changes in industry and market conditions, significant changes in cost structure, and deterioration in overall financial performance.
Do tariffs create a goodwill impairment triggering event?
Not automatically. Tariff-driven cost increases are a cost factor indicator under ASC 350-20-35-3C, and the assessment must determine whether they constitute a significant adverse change in the cost structure that is expected to have a continued negative effect on earnings and cash flows. Whether that cost change, in combination with other Q2 2026 circumstances, makes it more likely than not that the carrying amount of a specific reporting unit exceeds its fair value depends on the magnitude of the cost increase, the reporting unit's headroom at the most recent annual test, and whether the costs are expected to persist or reverse.
What is the more likely than not standard for triggering events?
More likely than not means a probability of more than 50%. The Grant Thornton and PwC analyses both confirm this interpretation. The triggering event assessment is not asking whether impairment has occurred or is certain. It is asking whether, based on available evidence, it is more probable than not that the carrying amount of the reporting unit exceeds its fair value. If the probability exceeds 50%, an interim test is required.
What must a company disclose in its Q2 10-Q about goodwill triggering event assessments?
Where goodwill is a critical accounting estimate, the MD&A critical accounting estimate discussion should describe the triggering event assessment performed at June 30, 2026, the specific events and circumstances evaluated, and the basis for the conclusion that no triggering event occurred. The disclosure should reference the headroom at the most recent annual test and address the sensitivity of the fair value estimate to the adverse changes observed in Q2 2026.
What have SEC comment letters said about goodwill impairment disclosures?
The SEC staff has consistently flagged four patterns: recognising impairment too late after multiple quarters where indicators existed; using management projections that historically miss targets to support passing tests; applying discount rates inconsistent with the risk profile of the cash flow projections; and failing to document why specific observable conditions such as market capitalisation falling below book value or earnings misses did not trigger an interim test.
Key Takeaways
- ASC 350-20-35-3C requires every company with goodwill to assess triggering events at each interim reporting date. The assessment must be performed at the reporting unit level, not the consolidated level, and documented contemporaneously with the Q2 close.
- Q2 2026 is a higher-risk interim period because it encompasses multiple distinct tariff phases, significant supply chain restructuring costs, and customer demand shifts that map directly to the cost factor, industry and market conditions, and overall financial performance indicators in ASC 350-20-35-3C.
- Tariff-driven margin compression is a cost factor indicator when the costs are significant and expected to persist. The triggering event analysis must assess whether the persistent cost changes, combined with the reporting unit's headroom at the most recent annual test, make it more likely than not that carrying amount exceeds fair value.
- The stock price indicator requires assessment of both absolute decline and decline relative to peers. When market capitalisation falls below book value, the SEC staff treats this as strong evidence that an interim test may be required and has specifically asked companies to explain why no interim test was performed.
- Supply chain restructuring costs trigger the cost factor indicator only to the extent they represent persistent cost increases, not one-time transitional costs. The memo should distinguish between these categories.
- Customer concentration loss is the most frequently overlooked triggering event indicator. Tariff-driven customer consolidation with less tariff-exposed competitors, or demand reduction from customers restructuring their own operations, can constitute this indicator.
- More likely than not means a probability greater than 50%, not certainty of impairment. Headroom at the most recent annual test is the critical variable: reporting units with narrow headroom require less adverse change to trigger an interim test.
- If the Q2 2026 triggering event assessment concludes no triggering event existed despite observable adverse conditions, the Q2 10-Q MD&A must describe the assessment, the specific conditions evaluated, and the specific basis for the conclusion.
