Fair Value Measurement, 3rd Edition

CHAPTER 5Impairment

IMPAIRMENT, ACCORDING TO the FASB Master Glossary, is the condition that exists when the carrying amount of a long‐lived asset or asset group exceeds its fair value. Goodwill must be tested for impairment annually, or sooner if events and circumstances indicate the asset may be impaired. If testing indicates that goodwill or an intangible asset is impaired, it must be written down to fair value immediately. Under U.S. GAAP, once goodwill and intangible assets are written down, they cannot be written back up when conditions improve.

The financial crisis gave rise to a sharp spike in U.S. goodwill impairment losses that peaked at $188 billion in 2008. Since then, impairment losses dropped to a more normal level. For 2013 and 2014, impairments were $22 and $26 billion dollars, but in 2015 U.S. goodwill impairment losses jumped to $57 billion, the highest level since the financial crisis. Several industries have been particularly hard hit. The energy and information technology sectors account for $18.2 billion and $12.9 billion of 2015's impairment losses. The high level of impairments in 2015 is partially the result of several high‐dollar impairment events. Notable companies with significant impairment losses in 2015 are Microsoft Corporation with $5.1 billion in losses, Yahoo!, Inc. with $4.5 billion, ConAgra Foods, Inc. with $2 billion, and several more with approximately $1.5 billion in goodwill impairment losses: MGM Resorts, International, NRG Energy, ...