Standards Update: 8/22/19
The Financial Accounting Standards Board (FASB) regularly issues Accounting Standards Updates (ASUs) to make changes to the FASB Codification, the primary source of Accounting Principles Generally Accepted in the United States (GAAP). Below is a select ASU that was recently issued.
ASU No. 2019-06, Intangibles—Goodwill and Other (Topic 350), Business Combinations (Topic 805), and Not-for-Profit Entities (Topic 958): Extending the Private Company Accounting Alternatives on Goodwill and Certain Identifiable Intangible Assets to Not-for-Profit Entities
The FASB has issued ASU No. 2019-06 to reduce the cost and complexity of accounting for goodwill and measuring certain identifiable, intangible assets for not-for-profit organizations (NFPs). ASU No. 2019-06 extends the scope of two private company alternatives to NFPs, which were provided in the following previously issued ASUs:
- ASU 2014-02, Intangibles—Goodwill and Other (Topic 350): Accounting for Goodwill
- ASU 2014-18, Business Combinations (Topic 805): Accounting for Identifiable Intangible Assets in a Business Combination
ASU No. 2019-06 will provide NFPs the option to elect to amortize goodwill on a straight-line basis and test for impairment upon a triggering event, and have the option to elect to test for impairment at the entity level. The guidance will also provide NFPs the option to elect to recognize fewer items as separate identifiable, intangible assets in an acquisition.
Goodwill Accounting Alternative
Based on ASU No. 2019-06, an NFP may elect to use the private company alternative provided in Topic 350, Intangibles—Goodwill and Other. If elected, an NFP would amortize goodwill on a straight-line basis over 10 years, or less than 10 years if the NFP demonstrates that a shorter useful life is expected. An NFP that elects this alternative is required to make an accounting policy election to test goodwill for impairment at either the entity level or the reporting unit level. Under the elections, an NFP is then required to test goodwill for impairment when a triggering event occurs that indicates the fair value of the entity (or a reporting unit depending on election) may be below its carrying amount.
Identifiable Intangibles Accounting Alternative
The amendments in ASU No. 2019-06 related to the accounting alternative in Topic 805, Business Combinations, are relevant when an NFP is required to recognize or otherwise consider the fair value of intangible assets primarily as a result of an acquisition. Under the new guidance, an NFP may elect the private company accounting alternative in Topic 805. For transactions occurring after this election, an NFP should include goodwill customer-related intangible assets that are not capable of being sold or licensed independently from the other assets of a business, as well as all noncompetition agreements acquired.
An NFP that makes this election is also required to adopt the Goodwill Accounting Alternative in Topic 350, discussed above. However, an NFP may elect the Goodwill Accounting Alternative without adopting the Identifiable Intangibles Accounting Alternative in Topic 805.
Effective Date and Transition
The amendments are effective immediately. An NFP electing these alternatives does not have to demonstrate preferability and should follow the transition guidance the first time they elect the alternative. NFPs have the same open-ended effective date and an unconditional one-time election that private companies currently have.
An NFP should apply the Goodwill Accounting Alternative prospectively for all existing goodwill and for all new goodwill generated in acquisitions after the election. An NFP should apply the Identifiable Intangibles Accounting Alternative prospectively upon the occurrence of the first transition within the scope of the alternative after the election.
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