The way that accountants have recorded goodwill across the statements has varied.

In 1970, the APB required firms to amortize goodwill for no longer than 40 years. Goodwill at that time was seen as a “wasting asset.” That is one with a definite life that loses value over time.

This means that goodwill increased the amortization expense on the income statement. Driving down net income.

In 2001, the FASB eliminated the amortization of goodwill, instead requiring companies to test goodwill for impairment.

This is a 2-step process.

1 – identify potential impairment charges.

If the fair value exceeds the carrying value of a reporting unit, no impairment is reported.

If this is not the case, then you move on to step 2.

2- compare implied fair value with carrying value.

If the carrying value exceeds the implied fair value, an impairment is reported.

In 2014, FASB gave private companies the option to amortize goodwill over 10 years or less.

In 2017, FASB eliminated step 2 and requires companies to record impairments when the carrying amount exceeds fair value.

Bottom-line? Today, firms are required to test for impairment on an annual basis.