The Financial Accounting Standards Board (FASB) voted on Wednesday to move forward with its project on what it calls "targeted improvements" to goodwill accounting. The project will address both the level at which goodwill impairment is tested and the frequency of testing.

Before the vote, FASB staff detailed their proposed changes. They proposed eliminating the requirement for companies to perform an annual impairment test and recommended changing the level at which goodwill impairment is tested from the current reporting unit level to the operating segment level.

"Testing at the operating segment level would simplify the model, reduce the burden on preparers and auditors, and better align impairment testing with the existing financial reporting structure and the way management evaluates performance," a staff member told the board during the meeting.

According to the Corporate Finance Institute, goodwill is an intangible asset that arises when a company acquires another business or entity at a price higher than its fair market value. Under current generally accepted accounting principles (GAAP), companies must recalculate the value of goodwill assets annually to determine whether impairment has occurred.

The U.S. accounting standard-setter decided to add the new project to its technical agenda for rulemaking about four years after it abandoned another goodwill project that explored allowing companies to amortize goodwill impairment to zero, CFO Dive previously reported.

Eliminating the annual test received support from several board members, including FASB Vice Chair Hillary Salo.

"Given the regulatory environment we are in, companies and auditors spend a significant amount of time on annual impairment testing, testing the forecasted financial information, the related control processes... These areas present significant challenges and costs. Therefore, I certainly support eliminating the annual impairment test to reduce costs," Salo said during the meeting.

But Salo also noted that goodwill is always a "hot topic" with many differing views. She expressed concern that tying the test to trigger events rather than a routine annual check could complicate the process.

After extensive discussion and voting among the board members, FASB Chair Richard Jones said the majority of the board voted in favor of the project. He proposed that the next step would require staff to gather more information on the cost implications of the proposed changes.