The US Financial Accounting Standards Board (FASB) has 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
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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 non-compete agreements into goodwill, which it must subsequently amortize.