FASB Exposure Draft on Goodwill Reporting for Nonprofits
by Jim D. Rebenar, CPA, Audit Manager
Posted on January 31, 2019
Now that we’ve all mastered the updated not-for-profit financial reporting model, and are well prepared to implement the new revenue recognition standard, what could the FASB possibly have in store for us next? If you guessed an update to the accounting for goodwill and certain other intangible assets, you get a prize!
On December 20, 2018, the Financial Accounting Standards Board issued a proposed accounting standards update that is largely based on previously issued standard updates for private companies (ASU No. 2014-02 and 2014-18). These private company updates were issued in 2014 in response to concerns over the cost and complexity of the goodwill impairment test and the accounting for certain identifiable intangible assets. When the Board issued the updates, it acknowledged that not-for-profit entities and public business entities also face the same concerns. As a result, the Board added it to their project agenda and here we sit today with an exposure draft proposing to extend the private company accounting alternatives on goodwill and certain identifiable intangible assets to NPO’s.
In the proposed ASU, instead of testing goodwill annually at the reporting unit level, a NPO may elect the accounting alternative, which would allow them to:
- Amortize goodwill over ten years on a straight-line basis. If it can be demonstrated that a shorter useful is more appropriate that may be used as well.
- Test for impairment when a triggering event occurs that indicates the fair value of the entity may be below its carrying amount.
- Have the option to elect to test for impairment at the entity level.
- Have the option to subsume certain customer-related intangible assets and all non-compete agreements into goodwill.
The FASB believes that the election of the accounting alternative by a NPO would reduce the cost and complexity of accounting for goodwill, without significantly reducing relevance to users of the financial statements. If you would like an opportunity to provide input on the proposed ASU you have until February 18, 2019 and may submit your comments to the FASB by email, letter, or on the electronic feedback form found on their website.
