FASB Proposes Accounting Alternative to the Goodwill Triggering Event Assessment for Certain Private Companies and Organizations

 – December 21, 2020
FASB Proposes Accounting Alternative to the Goodwill Triggering Event Assessment for Certain Private Companies and Organizations

The Financial Accounting Standards Board (FASB) today issued a proposed Accounting Standards Update (ASU) intended to provide an accounting alternative that would reduce the complexity for certain private companies and not-for-profit organizations when performing the goodwill triggering event evaluation. Stakeholders are encouraged to review and provide comment on the proposed ASU by Jan. 20, 2021.

Under current GAAP, goodwill must be tested for impairment when a triggering event occurs that indicates that it is more likely than not that the fair value of the reporting unit is below its carrying value. Companies and organizations are required to monitor for and evaluate goodwill triggering events as they occur throughout the year. 

Some stakeholders raised questions about the value of evaluating a triggering event at an interim date when certain private companies and not-for-profit organizations only issue GAAP-compliant financial statements on an annual basis. They noted the cost and complexity of preparing interim balance sheets and projecting cash flows that, according to those stakeholders, may not be relevant at the annual reporting date when financial statements are issued.

To address this, the proposed ASU would introduce an accounting alternative that would allow private companies and not-for-profit organizations that only report goodwill (or accounts that would be affected by a goodwill impairment such as retained earnings and net income) on an annual basis to perform a goodwill triggering event assessment, and any resulting test for goodwill impairment, on the annual reporting date only. It would eliminate the requirement for companies and organizations that elect this alternative to perform this assessment during interim reporting periods, limiting it to the annual reporting date only.

The scope of the proposed alternative would be limited to goodwill that is tested for impairment in accordance with Subtopic 350-20, Intangibles — Goodwill and Other — Goodwill. The guidance would not be limited to a specified time period but would be available on an ongoing basis. No additional disclosures would be required.