FASB Simplifies Accounting for Goodwill & Certain Identifiable Assets for NFPS

Details

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.

Background

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.

Main Provisions

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.

About Centri Business Consulting, LLC

Centri Business Consulting provides the highest quality advisory consulting services to its clients by being reliable and responsive to their needs. Centri provides companies with the expertise they need to meet their reporting demands. Centri specializes in financial reportinginternal controlstechnical accounting researchvaluationmergers & acquisitions, and tax, CFO and HR advisory services for companies of various sizes and industries. From complex technical accounting transactions to monthly financial reporting, our professionals can offer any organization the specialized expertise and multilayered skillsets to ensure the project is completed timely and accurately.

Philadelphia
Eight Penn Center
1628 JFK Boulevard
Suite 500
Philadelphia, PA 19103
New York City
530 Seventh Avenue
Suite 2201
New York, NY 10018
Raleigh
4509 Creedmoor Rd
Suite 206
Raleigh, NC 27612
Tampa
615 Channelside Drive
Suite 207
Tampa, FL 33602
Atlanta
1175 Peachtree Street NE
Suite 1000
Atlanta, GA 30361
Boston
50 Milk Street
18th Floor
Boston, MA 02109
Tysons Corner
1775 Tysons Blvd
Suite 4131
McLean, VA 22102
Denver
8310 South Valley Highway
3rd Floor
Englewood, CO 80112
Centri Everywhere
1-855-CENTRI1
virtual@CentriConsulting.com

03/22/2024

Bridging the GAAP: March 2024

Centri’s Bridging the GAAP newsletter highlights this month’s news, developments, and emerging issues in...

Read More

03/19/2024

Is Your Real Estate Portfolio at Risk for Impairment?

Today’s real estate environment can be challenging with certain sectors feeling the...

Read More

03/19/2024

The Value of a PEO Liaison: Minding the HR Service Gap

Introduction PEOs (Professional Employer Organizations) have been around for decades.  A recent...

Read More