FASB Proposes Goodwill Alternative for Private Cos., Nonprofits

Published January 19, 2021

The Financial Accounting Standards Board floated a proposed accounting standards update to offer an accounting alternative to make it easier for private companies and nonprofit organizations to evaluate a goodwill triggering event.

Under the current rules for U.S. GAAP, goodwill has to be tested for impairment when a triggering event happens indicating it’s more likely than not that the fair value of the reporting unit is beneath its carrying value. Companies and organizations have to monitor and evaluate goodwill triggering events as they happen throughout the year.

Some of FASB’s constituents have asked why they need to evaluate a triggering event at an interim date when some private companies and nonprofit organizations only issue GAAP-compliant financial statements on an annual basis. They pointed to the cost and complexity of preparing interim balance sheets and projecting cash flows that, according to those stakeholders, may not be especially relevant at the annual reporting date when financial statements are issued.

To deal with this problem, the proposed update would offer an accounting alternative to enable private companies and not-for-profits that only report goodwill (or accounts that would be affected by a goodwill impairment like retained earnings and net income) on an annual basis to do a goodwill triggering event assessment, and any resulting test for goodwill impairment, on the annual reporting date only. The update would get rid of the requirement for companies and organizations that opt for this alternative to do this assessment during interim reporting periods, limiting it to the annual reporting date only.

The scope of the proposed alternative would be restricted to goodwill that’s tested for impairment in accordance with Subtopic 350-20, Intangibles—Goodwill and Other—Goodwill, in FASB’s accounting standards codification. The guidance wouldn’t be limited to a specific time period but would be available on an ongoing basis. No extra disclosures would be needed.

(Source:  AccountingToday – Audit & Accounting – December 28, 2020)