The Financial Accounting Standards Board (FASB) issued new guidance that will allow not-for-profit organizations to elect two of the private company alternatives. This new guidance will allow not-for-profit organizations to elect to amortize goodwill and provide an option to subsume certain customer-related intangible assets and all non-compete agreements into goodwill.

These alternatives are expected to reduce the cost of accounting for goodwill and measuring identifiable intangible assets for not-for-profits as goodwill would only be tested for impairment upon a triggering event, instead of annually, and additional time and costs would not be incurred to determine the fair value of customer-related intangible assets and non-compete agreements.

The full update can be found on the FASB website.

For additional information in the not-for-profit sector, visit www.PKFTexas.com/NotForProfit.

The original press release on May 30, 2019 regarding the above rules is below:

FASB SIMPLIFIES ACCOUNTING FOR GOODWILL
AND CERTAIN IDENTIFIABLE INTANGIBLE ASSETS FOR NOT-FOR-PROFITS

Norwalk, CT, May 30, 2019 — The Financial Accounting Standards Board (FASB) today issued an Accounting Standards Update (ASU) that reduces the cost of accounting for goodwill and measuring certain identifiable intangible assets for not-for-profit organizations. The standard is effective immediately.

In 2014, the Private Company Council (PCC) worked with the FASB to issue two private company alternatives on accounting for goodwill and accounting for identifiable intangible assets in a business combination. Stakeholders told the FASB that these two private company alternatives would also benefit not-for-profit organizations.

This ASU extends the scope of the two private company alternatives to not-for-profits, enabling organizations to recognize fewer items as separate intangible assets in acquisitions and to account for goodwill in a more cost-effective manner.

In the ASU, instead of testing goodwill for impairment annually at the reporting unit level, a not-for-profit organization that elects the accounting alternative will:

  • Amortize goodwill over 10 years or less, on a straight-line basis
  • Test for impairment upon a triggering event
  • Have the option to elect to test for impairment at the entity level.

A not-for-profit organization also has the option to subsume certain customer-related intangible assets and all noncompete agreements into goodwill, which it subsequently must amortize.

The ASU is available at www.fasb.org.