The Financial Accounting Standards Board (FASB) issued a proposed Accounting Standards Update (ASU) on Dec. 20, 2018, that would streamline accounting for goodwill.
Under the proposed ASU (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), a not-for-profit (NFP) can elect alternatives that reduce the cost and complexity associated with the accounting for goodwill.
The proposed amendments expand the scope of 2014-02 (Topic 350) and 2014-08 (Topic 805), originally intended for small private companies, to NFPs. Specifically, NFPs would be permitted to adopt the accounting alternative in Topic 350 to amortize goodwill on a straight-line basis over 10 years, or less than 10 years if the entity demonstrates that a shorter useful life is more appropriate. The NFP would test for impairment upon a triggering event and could elect to test for impairment at the entity level—rather than the current requirement to annually test goodwill for impairment at the reporting-unit level.
The proposed changes for business combinations under Topic 805 would allow customer-related intangible assets that cannot be sold or licensed independently from other acquired assets of the business to be subsumed (incorporated) within goodwill. Currently, an acquiring NFP entity recognizes most assets acquired and liabilities assumed at the fair value on the acquisition date, including identifiable intangible assets such as customer lists.
Effective dates and transition
The effective date will be determined after FASB considers comments on the proposal. Essentially, the Board will consider whether it is appropriate for NFPs to have the same indefinite effective date and one-time election that private companies have. Concerning transition, the use of accounting alternative guidance is prospective for all existing goodwill and for all new goodwill generated in acquisitions after the determined effective date.
Comments are due to FASB by Feb. 18. NACUBO will submit comments and encourages independent institutions to comment directly to FASB or send feedback to Sue Menditto for inclusion in the industry comment letter.