Final answer:
The FASB's ASU in 2012 changed the calculation of goodwill impairment losses by introducing a qualitative goodwill impairment test. This test involves assessing qualitative factors to determine if an impairment exists, which then determines if a quantitative impairment test is necessary. This change provides a more efficient and cost-effective approach to assessing goodwill impairment.
Step-by-step explanation:
The Financial Accounting Standards Board (FASB) released Accounting Standards Update (ASU) 2011-08 in 2012, which impacted the calculation of goodwill impairment losses. Prior to the ASU, goodwill impairment was tested at the reporting unit level by comparing the fair value of the unit to its carrying value. If the fair value was lower, an impairment loss would be recognized. However, the ASU introduced a simplified approach called the qualitative goodwill impairment test.
This test involves an assessment of qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment indicates a potential impairment, then the quantitative impairment test is performed. Under the quantitative test, the fair value of the reporting unit is compared to its carrying amount, and an impairment loss is recognized if the fair value is lower.
This change in methodology provides companies with a more efficient and cost-effective way of assessing goodwill impairment, as it allows them to skip the quantitative test if the qualitative assessment indicates that it is not necessary.