FASB Issues Accounting Standards Update for Private Company Goodwill
Three Options for Goodwill Under Private Company GAAP
On January 16, 2014, the Financial Accounting Standards Board (FASB) issued an update to U.S Generally Accepted Accounting Principles (GAAP) that provides an optional alternative for private company accounting for goodwill.
FASB Accounting Standards Update (ASU) no. 2014.02, Intangibles—Goodwill and Other (Topic 350): Accounting for Goodwill, allows a private company to subsequently amortize goodwill on a straight-line basis over a period of ten years, or less if the company demonstrates that another useful life is more appropriate. The election will also permit a private company to use a simplified impairment model for goodwill. The impairment testing will be performed when a triggering event has been identified by management, and can be performed at the company level or reporting unit level. An impairment loss, if any, would equal the excess of the carrying amount of the company or reporting unit over its fair value.
If elected, the accounting alternative should be applied prospectively to goodwill existing as of the beginning of the adoption period in annual reporting periods beginning after December 15, 2014. Early application is allowed, including application to any period for which the financial statements have not yet been made available for issuance.
Private companies generally have three options for goodwill under the new GAAP:
- Adopt the alternative GAAP today and apply to the 2013 unissued financial statements (goodwill amortization “retroactively” begins on day one of the 2013 period, the easier impairment testing model is allowed for 2013).
- Wait to adopt the alternative GAAP in a future period (goodwill amortization begins on day one of the future period, the easier impairment testing model is allowed in the year of adoption).
- Never adopt the alternative GAAP (no amortization of goodwill is allowed, no changes in the impairment testing model).