A publicly-traded provider of training services for governmental agencies and corporate businesses, engaged Burnham to value its Goodwill and test it for impairment in accordance with the new rules on Goodwill accounting.

Under FASB Statement No. 142, introduced in June 2001, goodwill can no longer be amortized, but instead must be tested for impairment. Impairment is the condition that exists when the carrying value of goodwill exceeds its implied fair value. This test must be conducted at least on an annual basis, at a level within the company known as the "Reporting Unit."

In order to test goodwill for impairment at the Reporting Unit level, the assets and liabilities of the company must be assigned to each Reporting Unit. This establishes the "carrying value" of a Reporting Unit so that Step 1 of the goodwill impairment test (in which the carrying value of a reporting unit is compared to its fair value) can be completed.

If fair value exceeds carrying value, then Step 2 consists of calculating the implied fair value of goodwill and comparing this to its carrying value. If the implied fair value of goodwill is less than the carrying value, the company will have to recognize a loss equal to the difference.