Goodwill is not amortized under current U.S. accounting rules (GAAP). Instead, companies must test goodwill for impairment at least once a year. If the value of goodwill has decreased, they must record an impairment loss.
Key Points About Goodwill Accounting:
- No Annual Amortization – Unlike other intangible assets, goodwill isn’t gradually written off over time.
- Impairment Testing Required – Companies must review goodwill annually (or more often if certain events occur) to check if its value has dropped.
- Private Company Option – Some private companies can choose to amortize goodwill over 10 years, but most follow the standard impairment approach.
- International Differences – Outside the U.S. (under IFRS), goodwill also isn’t amortized but follows similar impairment rules.
This system aims to give a more accurate picture of a company’s true financial health by only recognizing goodwill losses when they actually occur.