The Financial Accounting Standards Board (FASB) has extended the private company accounting alternatives for goodwill and certain identifiable intangible assets to include not-for-profit entities through the issuance of Accounting Standards Update (ASU) No. 2019-06 (Intangibles—Goodwill and Other, Business Combinations, and Not-for-Profit Entities: Extending the Private Company Accounting Alternatives on Goodwill and Certain Identifiable Assets to Not-for-Profit Entities). The FASB believes these accounting alternatives will reduce the costs and complexities associated with accounting for such items.
The FASB has elected not to distinguish between public and non-public not-for-profit entities for this ASU, so the guidance will apply to all not-for-profit entities— including conduit bond obligors with publicly traded debt.
Goodwill
The ASU no longer exclusively requires not-for-profit organizations to test goodwill for impairment on an annual basis. Instead, a not-for-profit entity will have the option to elect an accounting alternative that allows it to only test for impairment when an event or change in circumstance occurs that would indicate that the fair value of the entity (or of a reporting unit) may be below the carrying amount— known as a triggering event.
Under the accounting alternative for goodwill, a not-for-profit entity will be required to:
- Amortize goodwill on a straight-line basis over 10 years (or less if the entity can demonstrate that a shorter useful life is more appropriate).
- Make an accounting policy election upon adoption to either test goodwill for impairment at the entity or reporting unit level.
Identifiable Intangible Assets
The ASU provides an accounting alternative that will allow a not-for-profit entity to include the following in goodwill (rather than recognizing and accounting for them as separate, identifiable intangible assets obtained in a not-for-profit’s acquisition):
- Customer-related intangible assets that cannot be sold or licensed independently.
- Noncompete agreements.
Effective Dates and Implementation of ASU 2019-06
The ASU’s amendments became effective upon issuance. A not-for-profit entity is not required to demonstrate evidence that it would benefit from adopting the accounting alternatives in order to make the elections.
Goodwill Implementation:
For existing goodwill, the ASU’s amendments should not be applied until the beginning of the first fiscal year after the accounting alternative’s adoption. At that point, existing goodwill is to be amortized prospectively on a straight-line basis.
For goodwill associated with transactions occurring after the accounting alternative’s adoption, the guidance should be applied prospectively as of the adoption date. Under both circumstances, retroactive adjustments or restatements resulting from the adoption of the accounting alternative are inappropriate.
Identifiable Intangible Assets:
Upon election of the identifiable intangible asset accounting alternative, an entity should apply guidance prospectively for applicable transactions occurring after the date of adoption. However, non-compete agreements and customer-related intangibles that existed prior to adoption will not be impacted. The ASU excludes these pre-existing intangible assets.
If an entity elects to adopt the accounting alternative for identifiable intangible assets, it must also adopt the accounting alternative for goodwill. Conversely, an entity electing to adopt the accounting alternative for goodwill is not required to also adopt the accounting alternative for identifiable intangible assets.
How PYA Can Help
PYA assists private and non-profit companies with decision-making and guidance for implementing accounting standards updates. For more information on this ASU, or for assistance with any matter involving audit and assurance, business advisory, or tax planning and preparation, contact a PYA executive below at (800) 270-9629.
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