United States

Simplified accounting for private companies: Goodwill


January 2014 (Updated June 2020)

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In January 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2014-02, Intangibles—Goodwill and Other (Topic 350): Accounting for Goodwill.  ASU 2014-02 provides private companies and not-for-profit entities with an alternative to accounting for goodwill subsequent to its initial recognition. The update is based on recommendations from the Private Company Council (PCC) and is intended to simplify the subsequent accounting for goodwill while still providing useful information to financial statement users. Private companies electing the accounting alternative will amortize goodwill on a straight-line basis over 10 years or a period of less than 10 years if it can demonstrate that another useful life is more appropriate.

Upon electing the accounting alternative, a private company will be required to make an accounting policy election to test goodwill for impairment at either the entity level or reporting unit level. The annual goodwill impairment test will be replaced with a requirement to test for impairment when a triggering event occurs indicating the fair value of the entity (or reporting unit) may be below its carrying amount. Upon the occurrence of a triggering event, a simpler, one-step impairment test will be performed.

The accounting alternative, if elected, would be prospectively applied to all goodwill existing as of the beginning of the period of adoption, as well as to all new goodwill generated from business combinations in the first annual period after adoption. A private company electing the alternative for the first time is allowed to do so without justifying that the accounting change is preferable to its existing method of accounting for goodwill or restating its financial statements. 


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