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Certain Private-Company Accounting Standards Now Extended to Nonprofits

On May 30, 2019, the FASB issued ASU 2019-06, Extending the Private Company Accounting Alternatives on Goodwill and Certain Identifiable Intangible Assets to Nonprofits, to simplify how a nonprofit accounts for goodwill and certain identifiable intangible assets by permitting the use of two private company options.

Background

In 2014, the FASB issued ASU 2014-02 and 2014-18, which permits, but does not require, a private company to amortize goodwill and simplifies the accounting by a private company for certain identifiable intangible assets in a business combination. The alternatives were initially developed by the Private Company Council based on feedback from private companies and their stakeholders about the costs and complexity associated with the goodwill impairment test and the accounting for certain identifiable intangible assets. When the ASUs were issued in 2014, the Board acknowledged that the issues of cost and complexity addressed by the private company accounting alternatives could apply to other entities, including nonprofits, and added this project to its agenda. The amendments in this ASU extend alternatives to nonprofits that reduce the cost and complexity associated with the subsequent accounting for goodwill and the measurement of certain identifiable intangible assets acquired without significantly diminishing decision-useful information for users of nonprofit financial statements.

Goodwill Alternative

A nonprofit electing the accounting alternative in ASC 350 will amortize goodwill on a straight-line basis over 10 years, or less than 10 years if the nonprofit demonstrates that a shorter useful life is more appropriate. Under this alternative, the nonprofit is required to make an accounting policy election to test goodwill for impairment at either the entity level or the reporting unit level. Goodwill must also be tested for impairment when a triggering event occurs that indicates the fair value of the entity (or a reporting unit) may be below its carrying amount.

Intangible Assets Alternative

A nonprofit electing the accounting alternative in ASC 805, for transactions occurring after adoption of the alternative, should subsume into goodwill and amortize the following assets: customer-related intangible assets that are not capable of being sold or licensed independently from other assets of a business; and all acquired non-compete agreements.

NOTE: An entity electing this alternative is required to adopt the alternative in ASC 350 to amortize goodwill. However, the reverse is not true; that is, an entity electing the accounting alternative in ASC 350 is not required to adopt the accounting alternative in ASC 805.

Effective Date and Transition

The amendments are effective upon issuance of ASU 2019-06. A nonprofit should apply the accounting alternative in ASC 350, if elected, prospectively for all existing goodwill and for all new goodwill generated in acquisitions. A nonprofit entity should apply the accounting alternative in ASC 805, if elected, prospectively upon the occurrence of the first transaction within the scope of the alternative.

If you have any questions regarding these changes, please contact a member of our Nonprofit Team today.

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