By Eric D. Turner, CPA | Business Assurance & Advisory Services Senior Manager | Not-for-Profit Team
In recognizing the differing reporting needs of private versus public companies, the Financial Accounting Standards Board (FASB) formed an advisory council known as the Private Company Council (PCC) tasked with giving consideration to areas of generally accepted accounting principles (GAAP) that create burdensome reporting requirements without resulting in useful information for the users of those financial statements. One of those areas was determined to be Goodwill and with Accounting Standards Update (ASU) 2014-02, Intangibles – Goodwill and Other (Topic 350): Accounting for Goodwill, a Consensus of the Private Company Council private companies were allowed to begin amortizing goodwill on a straight-line basis over a maximum of 10 years. Private companies that amortize goodwill only have to test for impairment when certain triggering events occur, such as a decline in the broad economy, changes in key management, declines in business lines, and so on. This removes the requirement to perform complicated quantitative impairment calculations so long as no triggering events have been identified. FASB member Gary Buesser speaking about the calculation of Goodwill impairment stated, “You have something that is costly and complex for companies to evaluate and provides zero or next-to-zero content of information to investors.”
FASB decided at its October 24, 2018, meeting to issue a proposed amendment to U.S. GAAP to allow not-for-profit organizations to follow the same guidance as ASU 2014-02 and begin amortizing goodwill acquired during an acquisition. The proposal is being followed-up by FASB releasing a preliminary document called an invitation to comment to take a more extensive review of the accounting for goodwill. After a brief comment period, FASB will then review the responses and it is anticipated that not-for-profits will be granted some relief over accounting for Goodwill.
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