Will Private Company GAAP Alternatives Soon Be Made Available to Nonprofits?
The Financial Accounting Standards Board (FASB) has proposed
that two GAAP alternatives currently available only to nonpublic business
entities also be made available to nonprofit organizations. The accounting
alternatives were originally codified into GAAP through ASU 2014-02 and ASU
2014-18, and resulted from the Private Company Council’s (PCC) initiative to advise
FASB on appropriate simplifications when applying GAAP to private
companies. The PCC-influenced
alternatives were originally not made available to public business entities,
nonprofit entities, or employee benefit plans.
The objective would be to improve the cost-benefits and
decision-making usefulness of information related to accounting for goodwill
and intangible assets in business combinations.
The alternatives would permit a nonprofit to recognize fewer intangible
assets and to streamline the subsequent accounting for goodwill.
The first alternative relates to amortization of goodwill
after initial recognition. Instead of
annually testing indefinite-lived goodwill for impairment at the reporting unit
level, the entity could choose to amortize goodwill on a straight-line basis
over a period of 10 years or less.
Impairment testing would only be required if a triggering event occurs,
bringing the recoverability of the carrying value of goodwill into
question. In addition, the nonprofit
would have the option to either test impairment at the entity level or at the
reporting unit level. The impairment
test is a simple, one-step test that does not require the calculation of the
“implied fair value of goodwill”.
The second alternative relates to absorbing certain customer-related intangible assets that cannot be separately sold or licensed and all noncompete agreements into the initial recognition of goodwill. This alternative would be available only if the nonprofit also elects the option to amortize goodwill over a period of 10 years or less. This project is still in its early stages, with formal feedback being gathered from stakeholders. J