FASB offers goodwill alternative for private cos., nonprofits

The Financial Accounting Standards Board released an accounting standards update Tuesday that gives private companies and nonprofits an accounting alternative to decrease the complexity of performing a goodwill triggering event evaluation.

Under current U.S. GAAP, goodwill needs to be tested for impairment when a triggering event happens that indicates that it’s more likely than not that the fair value of the reporting unit is less than its carrying value. The accounting rules require companies and organizations to monitor for and evaluate goodwill triggering events when they occur throughout the year.

Some of FASB’s constituents have asked about the value of evaluating a triggering event at an interim date when some private businesses and not-for-profits only issue GAAP-compliant financial statements on an annual basis. They pointed to the cost and complexity of preparing interim balance sheets and forecasting cash flows that they argued might not be relevant by the time of the annual reporting date when financial statements are eventually issued.

Courtesy of GASB

To deal with this problem, FASB is now offering an accounting alternative that enables private companies and not-for-profits to do a goodwill triggering event assessment, plus any resulting test for goodwill impairment, as of the end of the reporting period, whether the reporting period happens to be an interim or annual period. The new ASU will eliminate the requirement for companies and organizations that elect this alternative to perform the assessment during the reporting period, limiting it to the reporting date only. FASB approved the alternative last month (see story).

The scope of the proposed alternative is restricted to goodwill that’s tested for impairment in accordance with Subtopic 350-20, "Intangibles — Goodwill and Other—Goodwill." The amendments in the standards update take effect on a prospective basis for fiscal years starting after Dec. 15, 2019, but early adoption is allowed for both interim and annual financial statements that haven’t yet been issued or made available for issuance as of March 30, 2021. However, an organization shouldn’t retroactively adopt the amendments in the update for interim financial statements that have already been issued in the year of adoption.

The amendments in the update also include an unconditional one-time option for entities to adopt the alternative prospectively after its effective date. No extra disclosures would be required.

The standards update, including effective date information, is available at www.fasb.org.