On December 20, 2018, the FASB issued a proposed Accounting Standards Update (ASU),¹ which would extend the existing private company accounting alternatives on goodwill and certain identifiable intangible assets to not-for-profit entities (NFPs).

The proposed ASU offers NFPs simplified accounting alternatives related to goodwill and intangible assets that alleviate the costs and complexities associated with (1) the goodwill impairment test and (2) the measurement of certain customer-related intangible assets and noncompete agreements. Specifically, the proposed ASU would extend the following private company accounting alternatives to NFPs, permitting them to:

• Optionally “amortize goodwill over a period of 10 years or less, on a straight-line basis,” instead of testing goodwill for impairment annually.
• “[E]lect to test for impairment at the entity level.”
• “[S]ubsume certain customer-related intangible assets and all non-compete agreements into goodwill.”²

Effective Dates and Transition Requirements

The FASB has not yet determined the effective date of the proposed ASU. The transition methods for each accounting alternative would be the same as those previously allowed for private companies. The accounting alternative related to goodwill would be applied prospectively for new goodwill recognized in accounting periods after the elective date. Goodwill existing as of the adoption date would be amortized prospectively.

The accounting alternative related to intangible assets would be applied prospectively to all future business combinations entered into after the adoption date, with no option to apply retrospectively. An entity that adopts the accounting alternative for intangible assets would be required to adopt the accounting alternative for goodwill. However, an entity that elects the accounting alternative for goodwill would not be required to adopt the accounting alternative for intangible assets.

Next Steps

Comments on the proposed ASU are due by February 18, 2019.

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1 FASB Proposed Accounting Standards Update 2018-320, Intangibles — Goodwill and Other (Topic 350), Business Combinations (Topic 805), and Not-for-Profit Entities (Topic 958): Extending the Private Company Accounting Alternatives on Goodwill and Certain Identifiable Intangible Assets to Not-for-Profit Entities.

2 Quoted from the FASB’s news release.