The number of goodwill impairment calculations for private companies will be reduced—and the method will be made simpler—under a new proposal from the Financial Accounting Standards Board. Also, private companies would be allowed to amortize goodwill.
The proposal is derived from the FASB’s Private Company Council (PCC) Issue No. 13-01B, Accounting for Goodwill Subsequent to a Business Combination. It is one of three newly released proposed Accounting Standards Updates (ASUs) designed to simplify and reduce the cost of private company financial reporting.
Three key points: There would be fewer goodwill impairment calculations because of three provisions in the proposed ASU: (1) impairment testing would only need to be done upon the occurrence of a triggering event; (2) impairment would be assessed at the entity level rather than at the reporting-unit level; and (3) goodwill could be amortized over a short useful life (not to exceed 10 years).
Under a simplified method, the proposed ASU would eliminate the complicated Step 2 of the goodwill impairment test under current U.S. GAAP in ASC 350-20. Instead, private companies would measure goodwill impairment using Step 1 (the excess of the entity’s carrying amount over its fair value).
If a private company elects to use the alternative accounting for goodwill, it must prospectively apply the proposed ASU to all existing goodwill and any new goodwill resulting from future business combinations.
The other two proposals contain alternative approaches to account for intangible assets acquired in a business combination and certain types of interest rate swaps. Comments on the three proposals are due by August 23. During the exposure period, the FASB staff will consider whether the proposals should be extended to public companies or not-for-profit organizations.
Please let us know
if you have any comments about this article or enhancements you would like to see.