The FASB has issued ASU 2019-06, Extending the Private Company Accounting Alternatives on Goodwill and Certain Identifiable Intangible Assets to Not-for-Profit Entities related to changes to the treatment of goodwill and certain other intangible assets for not-for-profit entities that will allow not-for-profit entities the same accounting alternatives made available to private for-profit companies.
Private for-profit companies were given the option via ASU 2014-18 and 2014-02 to elect accounting alternatives related to reducing the amount of intangible assets required to be specifically identified in a business combination and the ability to amortize goodwill over a period of 10 years. These updates were made in order to reduce the amount of time and costs it took for private companies to value difficult to value intangible assets and complete an annual impairment evaluation for goodwill. When these standards were updated, not-for-profit entities were not considered for inclusion for the accounting alternative options, primarily because the push for these standards changes came from the Private Company Council.
Under the goodwill accounting alternative included in ASU 2019-06, not-for-profit entities will be allowed to elect to amortize goodwill over 10 years or less than 10 years if the not-for-profit entity demonstrates that a shorter useful life is more appropriate as included in Topic 350. Goodwill will be required to be evaluated for impairment when triggering events occur instead of annually or at each reporting date and will have the option to elect to test for impairment at the entity level. Under the intangible valuation in business combinations alternative in Topic 805, any customer-related intangible assets (including customer lists or customer relationships) and any noncompetition agreements will not be required to be separately identified from goodwill. A not-for-profit entity will have the option of electing the alternative in Topic 350, and will not be required to elect the alternative in Topic 805. However, if the not-for-profit entity elects the alternative in Topic 805 in a new business combination the not-for-profit entity will be required to elect the alternative in Topic 350.
The amendments included in ASU 2019-06 are effective immediately upon issuance of the ASU. Preferability is not required to be demonstrated in order to adopt the accounting alternatives. Once the accounting alternatives have been adopted, they will be required to be applied to all similar transactions in the future. The accounting alternative under Topic 350, when elected, would be applied to all existing goodwill and all new goodwill generated in future acquisitions. The accounting alternative under Topic 805 would be applied prospectively to the first occurrence of a business combination transaction that falls within the scope of the alternative.
The full text of ASU 2019-06 is available here.
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