What is the step-zero qualitative test for goodwill?

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AcadiFi · Accepted Answer

Step-zero is an optional qualitative assessment introduced by ASU 2011-08. Management evaluates whether it's more likely than not (>50% probability) that the reporting unit's fair value is below its carrying amount. If not, the quantitative test can be skipped. Qualitative factors include: macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, entity-specific events (management changes, litigation), reporting unit specifics, and sustained share price declines. Example: Harbor Industrial's Valve reporting unit has $180M carrying amount from an acquisition 4 years ago. Management reviews: industry growing at 8%, unit EBITDA up 12% YoY, no adverse regulatory changes, share price stable. Conclusion: not more likely than not that fair value < carrying. Skip quantitative test; document reasoning. ```mermaid flowchart TD A[Annual Test
Required] --> B{Elect Step Zero?} B -->|Yes| C[Qualitative
Review] B -->|No| E[Quantitative
Test] C --> D{FV < CV
More Likely?} D -->|No| F[No Impairment] D -->|Yes| E E --> G[Measure Loss] ``` Step-zero is useful for stable units but requires solid documentation to survive audit scrutiny.

What is the step-zero qualitative test for goodwill?

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