The FASB issued ASU 2019-06, Extending the Private Company Accounting Alternatives on Goodwill and Certain Identifiable Intangible Assets to Not-for-Profit Entities, to simplify how a non-profit entity accounts for goodwill and certain identifiable intangible assets by permitting the use of two private company options. The new ASU is available here, and becomes effective immediately.
In 2014, the FASB issued the following ASUs, both consensuses of the Private Company Council (PCC):
- ASU 2014-02, Intangibles—Goodwill and Other (ASC 350): Accounting for Goodwill, which permits, but does not require, a private company to amortize goodwill; and
- ASU 2014-18, Business Combinations (ASC 805): Accounting for Identifiable Intangible Assets in a Business Combination, which simplifies the accounting by a private company for certain identifiable intangible assets in a business combination.
ASU 2019-06 extends these private company alternatives to not-for-profit entities (NFPs). No other changes were made for public or private entities.
An NFP electing the accounting alternative in ASC 350 will amortize goodwill on a straight-line basis over 10 years, or less than 10 years if the entity demonstrates that a shorter useful life is more appropriate. Under this alternative, the entity is required to make an accounting policy election to test goodwill for impairment at either the entity level or the reporting unit level. Goodwill must also be tested for impairment when a triggering event occurs that indicates the fair value of the entity (or a reporting unit) may be below its carrying amount.
An NFP electing the accounting alternative in ASC 805, for transactions occurring after adoption of the alternative, should subsume into goodwill and amortize the following assets:
- customer-related intangible assets that are not capable of being sold or licensed independently from other assets of a business; and
- all acquired noncompete agreements.
An entity electing this alternative is required to adopt the alternative in ASC 350 to amortize goodwill. However, the reverse is not true; that is, an entity electing the accounting alternative in ASC 350 is not required to adopt the accounting alternative in ASC 805.
Effective Date and Transition
The amendments are effective upon issuance of ASU 2019-06. Consistent with the existing private company alternatives for goodwill and certain intangible assets, NFPs electing to adopt these alternatives do not have to demonstrate preferability and should follow the transition guidance the first time they elect to adopt the alternatives. NFPs have the same open-ended effective date and unconditional one-time election that private companies have.
The transition methods for the guidance on each accounting alternative are the same for NFPs as the previous transition methods for private companies. An entity should apply the accounting alternative in ASC 350, if elected, prospectively for all existing goodwill and for all new goodwill generated in acquisitions. An entity should apply the accounting alternative in ASC 805, if elected, prospectively upon the occurrence of the first transaction within the scope of the alternative.
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