The amendments in ASU 2019-06
extend the FASB’s Private Company Council (PCC) accounting alternatives on goodwill and certain identifiable intangible assets to not-for-profit (NFP) entities, allowing NFPs to elect to amortize goodwill and to combine certain identifiable intangible assets with goodwill. These changes are designed to simplify the accounting for goodwill and certain intangibles for NFP entities.
The accounting alternatives in the ASU would apply when an NFP is required to recognize or otherwise consider the fair value of intangible assets as a result of any one of the following transactions:
Accounting for goodwill
- Applying the acquisition method under ASC 805, Business Combinations (or under ASC 958-805, Not-for-Profit Entities – Business Combinations)
- Assessing basis differences when applying the equity method of accounting under ASC 323, Investments – Equity Method and Joint Ventures
- Adopting fresh-start accounting under ASC 852, Reorganizations
This accounting alternative allows NFPs to elect to amortize goodwill on a straight-line basis over either 10 years or less than 10 years if a shorter useful life is more appropriate. Further, an entity that elects this alternative must also elect whether to test goodwill for impairment at the entity level or at the reporting unit level.
Under the accounting alternative, impairment testing is performed when a triggering event occurs indicating that the fair value of the entity (or reporting unit) might be less than its carrying amount, in which case, an annual goodwill impairment test is no longer required. When a triggering event occurs, an entity has the option to perform a qualitative assessment to determine whether a quantitative test is needed. If that assessment demonstrates that it is not more likely than not that an impairment exists, no further testing is required. On the other hand, if it is more likely than not that goodwill is impaired, a quantitative test is required that compares the fair value of the entity (or reporting unit) with its carrying amount. The amount by which the carrying amount exceeds fair value represents the impairment loss to be recognized, up to the carrying amount of goodwill.
Accounting for certain intangible assets
This accounting alternative allows NFPs to elect to no longer recognize certain customer-related intangible assets and noncompetition agreements separately from goodwill. Under the accounting alternative, only noncompetition agreements and customer-related intangible assets that are not capable of being sold or licensed independently from the other assets of a business may be subsumed into goodwill.
An NFP that elects this accounting alternative is also required to elect the alternative on goodwill. However, an NFP electing the goodwill alternative is not required to elect the alternative for certain intangible assets.
This alternative is further summarized in Grant Thornton’s “ASU 2014-18 codifies private company alternative
Effective date and transition
The amendments in ASU 2019-06 are effective immediately. Consistent with existing guidance regarding the adoption of other PCC accounting alternatives, an NFP may initially adopt these accounting alternatives in the future without first establishing preferability. However, any subsequent change to that accounting policy election requires justification that the change is preferable under the guidance on accounting changes in ASC 250.
Considerations regarding adopting PCC accounting alternatives are further summarized in Grant Thornton’s “Accounting for financial instruments.”
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