A recently proposed Accounting Standards Update (ASU) would impact how not-for-profit organizations account for goodwill and certain identifiable intangible assets. The Financial Accounting Standards Board (FASB) has proposed 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. This proposed update would make applicable for not-for-profit entities (including those responsible for the repayment of bonds issued by state or local governments on their behalf), the same changes afforded private companies under ASUs 2014-02 (Intangibles – Goodwill and Other: Accounting for Goodwill) and 2014-18 (Business Combinations: Accounting for Identifiable Assets in a Business Combination).
Background
ASU 2014-02 gave private companies the option to amortize, or write-off, goodwill on a straight-line basis over a period of ten years or less, if the company could show it was more appropriate. Private companies electing this option no longer needed to perform an annual test for goodwill impairment, and only were required to test upon election or when a triggering event occurred. Goodwill impairment is a decrease in the fair value of a company below its carrying value. The company would then reduce goodwill so that the fair value equals the carrying value.
However, not-for-profit organizations were ineligible for this election. ASU 2014-18 simplified accounting even further for private companies by providing the choice to include intangible assets from non-compete agreements (NCA) and customer-related intangible (CRI) assets that cannot be separately sold as goodwill. To elect this alternative, private companies must have also elected the goodwill accounting alternative from ASU 2014-02. Previously recognized NCA or CRI could not be moved for inclusion in goodwill. Consistent with ASU 2014-02, not-for-profit organizations were also ineligible for this election.
Decision to Propose an Update
The FASB issued ASUs 2014-02 and 2014-18 to address private companies’ concerns about the cost and complexity of the goodwill impairment test and the accounting for certain identifiable intangible assets. Consequentially, not-for-profit stakeholders expressed that these private-company alternatives would be helpful for not-for-profits as well, as the benefits of accounting under current standards does not justify the costs.
Benefits for Not-For-Profits
This proposed ASU will simplify intangible assets accounting for not-for-profits by enabling them to recognize fewer items as separate intangible assets in acquisitions. It also provides the option for a more cost-effective manner of goodwill accounting, as it removes the annual impairment test by allowing goodwill to be written off.
Moving Forward
After receiving feedback, the FASB would determine whether to implement the ASU. After this determination, the effective date would be decided. If the proposed update is accepted, then not-for-profit entities electing to adopt this alternative method of goodwill accounting would do so prospectively and would not apply it retrospectively.
Firms that wish to adopt the alternative form of identifiable intangible assets accounting must also adopt the alternative method to write-off goodwill. However, firms are not required to elect the alternative method of accounting for unidentifiable intangible assets in order to elect the alternate method to write-off goodwill. Stakeholders can review and give the FASB feedback through February 18, 2019.
How PYA Can Help
PYA assists private and non-profit companies with staying on top of accounting standards updates, assisting with decision-making, and providing guidance for implementation. For more information on this ASU, contact a PYA executive below at (800) 270-9629.
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