Reporting unit definition
/What is a Reporting Unit?
A reporting unit is an operating segment of an entity, and is the level of reporting at which an entity tests for impairment. An operating segment qualifies as a reporting unit if it is a business for which financial information is made available to management, and for which management routinely reviews its operating results. The reporting unit concept is most commonly applied to goodwill impairment testing under Generally Accepted Accounting Principles (GAAP).
Goodwill is an intangible asset that arises when an acquirer pays a price for an acquiree that exceeds the fair value of the assets and liabilities of the acquiree. This excess amount is recognized as a goodwill asset on the balance sheet of the acquirer. GAAP mandates that this asset be tested for impairment at least once a year, or if a variety of events occur that suggest that goodwill impairment may have occurred.
To conduct an impairment test, an entity must identify its reporting units and calculate the carrying amount of each one. This carrying amount includes an allocation of the goodwill asset. This carrying amount is then compared to each reporting unit’s fair value. If the fair value is less than the carrying amount, then a goodwill impairment loss is presumed to have occurred.