United States

FASB to propose goodwill impairment triggering event alternative

FINANCIAL REPORTING INSIGHTS  | 

On November 18, 2020, the Financial Accounting Standards Board (FASB) met and agreed to issue a proposed Accounting Standards Update (ASU) that would provide an additional goodwill impairment alternative for private companies and not-for-profit entities (both as defined in the Master Glossary of the FASB’s Accounting Standards Codification [ASC]) that only prepare financial statements compliant with U.S. generally accepted accounting principles (GAAP) on an annual basis. The alternative would not be available to private companies and not-for-profit entities that prepare GAAP-compliant financial statements in interim periods.

Based on discussions during the meeting, the additional expected alternative (if elected) would allow qualifying entities to perform any goodwill triggering event impairment test required by ASC 350-20-35-30 or ASC 350-20-35-66 only on their annual reporting date (i.e., as of their year end), rather than at the triggering event date. In addition, the alternative would only apply to goodwill within the scope of ASC 350-20, “Intangibles—Goodwill and Other – Goodwill” (i.e., it would not apply to equity-method goodwill, fresh-start accounting goodwill or other goodwill not within the scope of ASC 350-20). While the perceived need for this alternative was elevated as a consequence of the economic disruption attributable to the coronavirus pandemic, the applicability of the alternative would not be limited to only those annual periods affected by the coronavirus pandemic.

No incremental disclosures would be required beyond those already required by ASC 235, “Notes to Financial Statements,” and ASC 350-20 if an entity were to elect the expected additional alternative. If an entity were to elect the alternative, that election would have to be disclosed under ASC 235.

The proposed ASU is expected to indicate that the alternative would be prospectively applied. In addition, the proposed effective date is expected to be for financial statements with fiscal years beginning after December 15, 2019, with early adoption permitted in annual financial statements that have not been issued or made available for issuance at the point in time the final ASU is issued. In addition, the proposed ASU is expected to provide an unconditional one-time election to adopt the alternative prospectively after its effective date without assessing preferability under ASC 250, “Accounting Changes and Error Corrections.”

The decisions made by the FASB will only become part of U.S. GAAP after a final ASU is issued. There are numerous activities that must take place before then, including the issuance of the proposed ASU, the review of comments provided by constituents on the proposed ASU, redeliberations of the decisions included in the proposed ASU, a decision to issue a final ASU and the issuance of a final ASU. During the meeting, the FASB staff indicated that they expect to issue the proposed ASU in mid-December 2020, and the FASB agreed to provide a 30-day comment period for the proposed ASU (which would then end in mid-January 2021). Based on that timing, we expect the earliest a final ASU may be issued by the FASB is the latter part of the first quarter of 2021.

Once available, a summary of the tentative decisions made by the FASB at its meeting on November 18, 2020 will be located here.

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