On July 29, 2026, the Financial Accounting Standards Board voted to add a project on goodwill impairment testing to its technical agenda. <cite index="34-1">The board decided to make targeted improvements to address two things: the level at which goodwill is tested for impairment, and the frequency of the testing.</cite>
Before the vote, FASB staff presented its recommended changes. <cite index="32-1">The staff proposed eliminating the requirement that companies test for impairment annually, and suggested requiring goodwill to be tested at the operating segment level of a company rather than at the reporting unit level as is currently required.</cite>
<cite index="32-1">FASB Vice Chair Hillary Salo expressed support for removing the annual impairment test, stating: "Given the regulatory environment that we are in, companies and auditors spend an exorbitant amount of time doing an annual impairment test, testing the projected financial information that goes into that, the controls around the process... these are areas of significant challenges and significant cost."</cite>
The FASB's decision to add this to the technical agenda is not a final standard. It is the beginning of the standard-setting process. But it is consequential right now for three specific reasons.
First, the project is now on the technical agenda, which means it is past the research phase. Exposure drafts, comment periods, and final standards follow from technical agenda additions, not research projects.
Second, the proposed changes are among the most significant simplifications to goodwill accounting since SFAS 142 eliminated the pooling of interests method and Step 2 was subsequently eliminated by ASU 2017-04. Moving from annual to triggering-event-only testing, and from reporting unit to operating segment level, would reduce the cost and complexity of goodwill accounting materially.
Third, and most immediately: adding this to the technical agenda triggers a SAB 74 disclosure obligation. Any company that would be materially affected by the proposed changes must disclose the nature of the pending standard and its expected financial impact in Q3 and Q4 2026 10-Q filings. Zero guidance exists on what that disclosure should say for this specific project.
What Did FASB Vote to Change About Goodwill Impairment Testing and When?
<cite index="34-1">At its July 29, 2026, meeting, the FASB discussed whether to add to its technical agenda a project on goodwill impairment testing on the basis of feedback it had received as part of its 2025 invitation to comment on its agenda consultation.</cite>
The board voted to proceed. <cite index="31-1">The project will address the level at which goodwill is tested for impairment, and the frequency of the testing.</cite>
The two specific proposals the staff brought to the board, and that the board voted to pursue:
Proposal 1: eliminate the annual goodwill impairment test. Under current ASC 350-20, every entity with goodwill on its balance sheet must test that goodwill for impairment at least annually, regardless of whether triggering events exist. The staff proposed replacing the annual test with a triggering-event-only model, under which impairment testing would only be required when events or changes in circumstances indicate that goodwill may be impaired.
Proposal 2: move from reporting unit to operating segment level testing. Under current ASC 350-20, goodwill impairment testing is performed at the reporting unit level, which is typically one or two levels below an operating segment. The staff proposed moving the testing level up to the operating segment, the level companies already use for ASC 280 segment reporting.
This is the second major goodwill project the FASB has launched in recent years. <cite index="32-1">About four years ago, the FASB dropped another goodwill project that had explored allowing companies to amortize, or write down, goodwill over time.</cite> The current project does not address amortisation and is specifically focused on the testing mechanics.
What Is Wrong With the Current Annual Test Under ASC 350-20 and Why FASB Staff Says It's Too Burdensome
The current goodwill impairment testing model under ASC 350-20 requires a two-stage process for public companies with goodwill: first, an optional qualitative assessment (the "Step 0" screen), and if that assessment suggests impairment is more likely than not, a quantitative test comparing the reporting unit's carrying amount to its estimated fair value.
<cite index="31-1">The FASB staff said that eliminating the annual requirement to perform a goodwill impairment test would reduce costs and complexities of the goodwill impairment model for many entities because entities already have processes, internal controls and audit procedures in place to identify and assess triggering events.</cite>
The cost argument is straightforward: the annual test, even when performed as a qualitative Step 0 assessment, requires management to document its assessment of qualitative factors, prepare supporting analysis, and have that analysis reviewed by auditors and, when material, by audit committees. For companies with dozens of reporting units, the annual assessment is a significant undertaking even in years when no triggering events exist and the qualitative assessment concludes that impairment is not more likely than not.
The audit cost component is the element FASB Vice Chair Salo specifically called out. <cite index="32-1">She noted that companies and auditors "spend an exorbitant amount of time doing an annual impairment test, testing the projected financial information that goes into that, the controls around the process" and described these as "areas of significant challenges and significant cost."</cite>
The investor relevance argument also supports the change. <cite index="31-1">Many investors stated that quantitative impairment amounts are generally excluded from financial analysis models.</cite> If investors are already excluding goodwill impairment charges from their analysis (as is common practice in equity research, where Adjusted EBITDA and other non-GAAP measures exclude impairment), the cost of producing the annual test result may exceed its analytical value to the primary users of financial statements.
Proposed Change #1: Eliminate the Annual Impairment Test, What Triggering-Event-Only Testing Would Look Like
A triggering-event-only model would operate the same way interim goodwill testing currently operates under ASC 350-20-35-3C. Under that standard, companies must assess at each reporting date whether events or circumstances make it more likely than not that a reporting unit's carrying amount exceeds its fair value. If such a triggering event exists, a quantitative or qualitative assessment must be performed.
The proposed change simply removes the additional annual layer. Instead of performing both the interim triggering event assessment at each reporting date and an annual quantitative or qualitative test at the designated annual testing date, companies would only perform a quantitative or qualitative test when the triggering event assessment concludes that one is required.
The triggering events that would still require testing under the proposed model include the same conditions currently listed in ASC 350-20-35-3C: macroeconomic conditions, industry and market deterioration, cost factors, overall financial performance, entity-specific events (management changes, litigation, regulatory actions), sustained share price decline, and the annual Step 0 assessment result itself.
The Iran war oil price cycle, the OBBBA provisions affecting taxable income, and the Fed rate environment are examples of the types of macroeconomic conditions that constitute triggering events under the current framework. These conditions would continue to trigger impairment assessments under the proposed model. The difference is that a company with no triggering events in a given year, because the economy is stable and its reporting units are performing well, would not be required to perform any goodwill impairment assessment during that year.
The operational benefit is largest for companies with many reporting units and goodwill balances that substantially exceed carrying amounts (large headroom). For these companies, the annual test produces the same qualitative conclusion year after year: no impairment is probable. The cost of producing that conclusion is significant; the informational value of the conclusion to investors is limited.
Under the proposed model, those companies would not perform a goodwill impairment assessment in years without triggering events. They would redirect the time and cost of the annual assessment to other areas of their reporting and control environment.
Proposed Change #2: Move From Reporting Unit to Operating Segment Level, What That Means for Your Goodwill Allocation Structure
The reporting unit is the level at which goodwill is currently tested under ASC 350-20. A reporting unit is an operating segment or one level below an operating segment (a component of an operating segment). For companies with multiple product lines, geographies, or business units within a single operating segment, the reporting unit level is typically more granular than the operating segment.
<cite index="31-1">The FASB staff stated that testing goodwill at the operating segment level would simplify the model, improving consistency and operability, reduce preparer and audit burden, and better align impairments with existing financial reporting structures and how management evaluates performance, while continuing to provide users with decision-useful information.</cite>
The operating segment is the level at which ASC 280-10 requires companies to report financial information in their notes to the financial statements. It is the level at which the chief operating decision maker evaluates performance and allocates resources. Most companies have three to ten operating segments. Many companies have significantly more reporting units.
<cite index="31-1">Testing at the operating segment level would align with long-lived asset testing under ASC 360, which uses asset groups that are typically at the operating segment level.</cite> This alignment eliminates the current situation where a company tests long-lived assets at one level (operating segment asset group) and then tests goodwill at a more granular level (reporting unit), producing potentially inconsistent results from the same economic conditions.
The practical implication for goodwill allocation: if the standard moves to operating segment level testing, companies must allocate goodwill to operating segments rather than to reporting units. For most acquisitions, goodwill can be allocated to operating segments because the acquired business typically benefits one or more specific segments. The allocation process at the operating segment level is generally simpler than at the reporting unit level because there are fewer segments than reporting units and the allocation is more closely aligned with how management thinks about the acquired business.
Why Operating Segment Level Testing Aligns With ASC 280 and ASC 360 and Why That's Actually Simpler
The current goodwill testing framework sits at a different level from both of the other major financial reporting frameworks that use similar concepts: ASC 280 segment reporting (which operates at the operating segment level) and ASC 360 long-lived asset impairment (which operates at the asset group level, typically the operating segment for large asset groups).
This three-level structure creates a specific complexity for companies with multiple levels of organisational hierarchy. A company with two operating segments (Space and Connectivity, for example) may have fifteen or twenty distinct reporting units within those two segments, each requiring separate goodwill allocation, separate DCF modelling, and separate impairment assessment. The same company reports financial performance at the operating segment level in its ASC 280 footnotes and tests long-lived assets at the asset group level in its ASC 360 analysis. Only the goodwill test drops to the more granular reporting unit level.
Moving goodwill testing to the operating segment level creates alignment across all three frameworks:
ASC 280: reporting and disclosure at operating segment level. Financial performance evaluation at operating segment level.
ASC 360: long-lived asset impairment testing at asset group level, which for major asset groups is typically the operating segment.
ASC 350-20 (proposed): goodwill impairment testing at operating segment level.
The alignment benefit is not just operational simplicity. It also produces more consistent impairment signals. If an operating segment deteriorates, both the long-lived assets (tested at the segment level under ASC 360) and the goodwill (tested at the segment level under the proposed model) will reflect that deterioration. Under the current model, a deteriorating operating segment may not trigger goodwill impairment at the reporting unit level because some reporting units within the segment still have headroom, even though the segment as a whole is impaired.
What Does This Mean for Companies With Complex Reporting Unit Structures Built for ASC 350-20?
Many companies have built reporting unit structures specifically to satisfy ASC 350-20's current testing requirements. The reporting unit structure was designed with the impairment testing framework in mind: allocating goodwill to specific reporting units, maintaining separate financial statements or financial projections for each unit, and establishing internal controls over the reporting unit impairment assessment process.
If the standard moves to operating segment level testing, companies with complex reporting unit structures have three decisions to make:
First, whether to restructure their reporting unit identification before the new standard takes effect, or wait until after the effective date. Pre-effective-date restructuring should not be done purely for accounting convenience; the reporting unit structure must reflect how the business is managed. But where reporting unit boundaries were drawn specifically to accommodate the ASC 350-20 testing requirement and the management structure has evolved, the change in the standard provides an opportunity to realign.
Second, how to handle goodwill that is currently allocated to specific reporting units when the testing level moves to operating segments. At transition, goodwill allocated to reporting units within the same operating segment would be aggregated to the operating segment level. Companies must assess whether the aggregated operating segment goodwill balance creates any transition-date impairment concerns.
Third, whether the simplified operating segment structure creates any changes to the company's internal controls over goodwill. The controls around reporting unit identification, goodwill allocation, and impairment assessment are currently documented at the reporting unit level. Under the proposed model, those controls would be redesigned at the operating segment level.
None of these decisions need to be made before the standard is finalised. But companies with complex reporting unit structures should begin documenting what their current structure looks like, why it exists, and how it would change under operating segment level testing, so that the transition analysis can be completed efficiently once the exposure draft is published.
What Are the M&A Implications: How Does the Proposed Change Affect Goodwill From Deals Closing in 2026 and 2027?
Goodwill from business combinations closed in 2026 and 2027 will be on the balance sheet when the new goodwill impairment standard takes effect. The timing of the effective date is unknown (the exposure draft has not yet been published), but a realistic estimate for a standard on the technical agenda as of July 2026 is an effective date of 2028 to 2029.
For M&A planners, the proposed change has three specific implications:
Goodwill allocation at acquisition date: under the current model, goodwill must be allocated to reporting units at acquisition date or as soon as practicable after. Under the proposed model, goodwill would be allocated to operating segments. For companies planning acquisitions in 2026 and 2027, the goodwill allocation decision made today (to reporting units) will need to be transitioned to operating segment level allocations when the new standard takes effect. This transition is generally straightforward because reporting units are components of operating segments, but it requires planning.
Triggering event risk at the operating segment level: a company that acquires a business and allocates goodwill to a reporting unit within an operating segment currently has the goodwill tested at the reporting unit level, which provides some protection from impairment if the acquired business underperforms but other businesses within the same segment perform well. Under the proposed model, the goodwill would be tested at the operating segment level, aggregating all businesses within the segment. This is generally less sensitive to individual business underperformance and more reflective of segment-level performance.
Impairment probability under triggering-event-only testing: for acquisitions made at high valuations (reflecting significant goodwill) during strong economic periods, the elimination of the annual test reduces the probability of discovering and recording an impairment in years without triggering events. However, when triggering events do occur (macroeconomic deterioration, interest rate spikes, industry disruption), the impairment test at the operating segment level is likely to capture a broader base of goodwill than a reporting unit-level test.
Is This a SAB 74 Disclosure Obligation in Your Q3 2026 10-Q? Yes, Here's Why
SAB Topic 11.M (SAB 74) requires companies to disclose the impact of recently issued accounting pronouncements that have not yet been adopted. The guidance applies to standards that have been issued, as well as to standards that are in active standard-setting with a known or expected effective date that would affect the company's financial statements.
A FASB technical agenda addition is not yet a proposed ASU, and it is certainly not a final standard. However, SAB 74 applies to the expected impact of a standard that is actively being developed, not only to standards that have been fully issued. The SEC staff has interpreted SAB 74 to require disclosure when a standard is sufficiently developed that a company can reasonably assess whether it will have a material effect.
For the FASB goodwill impairment project, the July 29 technical agenda vote satisfies that threshold for companies that are most likely to be materially affected: those with large goodwill balances, many reporting units, and annual testing processes that would be significantly simplified by the proposed changes.
The SAB 74 disclosure for the FASB goodwill project in Q3 2026 should include: a description of the project and the proposed changes (elimination of the annual test and shift to operating segment level), an acknowledgement that no exposure draft has yet been issued, a statement about when the standard is expected to be issued (unknown at this stage), and either a qualitative or quantitative assessment of the expected impact on the company's goodwill testing process.
For companies where the proposed changes would not have a material effect (those with a single reporting unit, or those with no significant goodwill), the SAB 74 disclosure may conclude that the project is not expected to have a material effect and provide a brief explanation.
The SEC's comment letter practice: SEC staff have asked companies to update their SAB 74 disclosures when the status of a pending standard changes. Adding the goodwill project to the technical agenda is a status change from the research phase that companies should reflect in their Q3 2026 disclosures.
What Is the Timeline: When Will FASB Issue a Proposed ASU and What Is the Expected Effective Date?
The FASB's technical agenda addition on July 29 is stage one of the standard-setting process. The typical FASB standard-setting timeline from technical agenda addition to final standard:
Stage 1 (completed July 29, 2026): technical agenda addition. FASB board votes to pursue a project.
Stage 2 (typically 6 to 12 months after stage 1): staff deliberations and board discussions. FASB staff research the issues in detail, present alternatives to the board, and narrow the scope of the proposed standard.
Stage 3: exposure draft publication. FASB publishes a proposed ASU for public comment. Comment periods are typically 60 to 90 days.
Stage 4: comment letter review and final deliberations. FASB reviews comment letters and deliberates on the final standard.
Stage 5: final standard issuance and effective date.
For a goodwill project added to the agenda in July 2026, a realistic timeline for an exposure draft is late 2026 or 2027. A final standard is unlikely before 2028. An effective date for a standard of this significance, which would require transition-period analysis and significant change to audit procedures and internal controls, would typically be at least two years after issuance, with early adoption permitted.
The realistic effective date for the goodwill impairment changes: 2029 to 2030 at the earliest, possibly later. This means companies closing M&A deals in 2026 and 2027 will operate under the current ASC 350-20 framework for the first three to four years of the goodwill's life.
The Kroll 2026 US Goodwill Impairment Study, published June 4, 2026, noted that <cite index="33-1">the FASB asked its staff to perform additional research with the objective of simplifying the subsequent accounting for goodwill by considering requiring an impairment test only upon a triggering event and testing for impairment at the operating segment level.</cite> That research preceded the July 29 vote, meaning the board had already reviewed staff findings before adding the project to the technical agenda.
What Should Your Controller and CFO Be Doing Right Now Before the Standard Changes?
Four specific actions, each calibrated to the current stage of the project (technical agenda, no exposure draft yet).
First, draft the Q3 2026 SAB 74 disclosure. The disclosure should describe the FASB's July 29 technical agenda addition, the two proposed changes (annual test elimination and operating segment level shift), the current stage of the project (technical agenda, no proposed ASU issued), and the company's preliminary assessment of the expected impact. For companies with large goodwill balances and many reporting units, the preliminary assessment should describe qualitatively how the changes would affect the annual testing process and the cost of compliance.
Second, document the current reporting unit structure. Prepare a map of the company's current reporting units, how they relate to operating segments, and how goodwill is allocated across reporting units. This documentation serves two purposes: it is the baseline from which the transition analysis will be performed when the exposure draft is published, and it supports the SAB 74 disclosure's description of the company's current practice.
Third, begin internal modelling of the operating segment level impact. For each operating segment, aggregate the goodwill balances from all reporting units within that segment. Identify any operating segments where the aggregated goodwill balance is material relative to the segment's carrying amount. Assess whether triggering events that affected individual reporting units in recent years would have affected the operating segment under the proposed model.
Fourth, monitor the FASB technical agenda page at fasb.org for the publication of a project page, a discussion document, and ultimately an exposure draft. The comment period on the exposure draft will be the primary opportunity for companies to influence the final standard's scope, transition requirements, and effective date. Companies with material goodwill balances should prepare comment letters when the exposure draft is published.
Frequently Asked Questions
What did FASB vote to change about goodwill impairment testing?
<cite index="34-1">At its July 29, 2026 meeting, the FASB voted to add a project to its technical agenda to make targeted improvements to address the level at which goodwill is tested for impairment and the frequency of the testing.</cite> The staff proposed eliminating the annual impairment test and moving testing to the operating segment level rather than the current reporting unit level.
Will the annual goodwill impairment test be eliminated?
The staff has recommended eliminating it, and the FASB board voted to pursue the project. However, no exposure draft has been issued and no final standard exists. The annual test remains required under current ASC 350-20 until a final standard is issued and takes effect, which is estimated to be 2028 to 2030 at the earliest.
What is operating segment level goodwill testing and how is it different from reporting unit level?
<cite index="32-1">Under the current model, goodwill is tested at the reporting unit level, which is typically one or two levels below an operating segment.</cite> Under the proposed model, goodwill would be tested at the operating segment level, the same level companies use for ASC 280 segment reporting. Most companies have significantly fewer operating segments than reporting units, making the operating segment level simpler and more aligned with how management evaluates performance.
Does the FASB goodwill project require a SAB 74 disclosure in my Q3 10-Q?
Yes, for companies that would be materially affected. SAB 74 requires disclosure of standards that have been issued or are in active development when the expected impact is material. The July 29 technical agenda addition is a sufficient trigger for companies with large goodwill balances and complex reporting unit structures to include a SAB 74 disclosure about the project in their Q3 2026 10-Q.
When will FASB issue a proposed ASU on goodwill impairment testing?
No timeline has been announced. Based on the typical FASB standard-setting process, an exposure draft could be published in late 2026 or 2027. A final standard is unlikely before 2028, and an effective date of 2029 to 2030 is a reasonable estimate.
Do I need to restructure my reporting units before the new standard takes effect?
No, not before the standard is finalised. However, companies should document their current reporting unit structure and begin modelling what the operating segment level aggregation would look like, so that the transition analysis can be completed efficiently once the final standard's effective date and transition requirements are known.
Key Takeaways
- <cite index="34-1">At its July 29, 2026 meeting, the FASB voted to add a goodwill impairment project to its technical agenda to address the level at which goodwill is tested and the frequency of testing.</cite>
- The FASB staff recommended two changes: eliminate the annual impairment test (replacing it with triggering-event-only testing) and move the testing level from reporting units to operating segments. <cite index="32-1">FASB Vice Chair Hillary Salo expressed support for removing the annual test, citing the exorbitant time companies and auditors spend on the annual process.</cite>
- <cite index="31-1">The FASB staff stated that eliminating the annual test would reduce costs because entities already have processes, controls and audit procedures to identify triggering events, and that testing at the operating segment level would simplify the model and better align impairments with existing financial reporting structures.</cite>
- No exposure draft has been issued. The current ASC 350-20 annual test at the reporting unit level remains in effect. A realistic effective date for any new standard is 2028 to 2030 at the earliest.
- The July 29 technical agenda addition triggers a SAB 74 disclosure obligation for companies materially affected by the proposed changes. Q3 and Q4 2026 10-Q disclosures should describe the project, the two proposed changes, the current stage (no exposure draft issued), and the company's preliminary assessment of expected impact.
- For M&A planners: goodwill from 2026 and 2027 acquisitions will operate under current ASC 350-20 for the first several years. The transition to operating segment level testing will require goodwill reallocation at the operating segment level when the new standard takes effect.
- Immediate actions: draft the Q3 2026 SAB 74 disclosure, document the current reporting unit structure, aggregate goodwill by operating segment to model the proposed change's impact, and monitor the FASB project page for the exposure draft publication.
