Potential Accounting Alternative for Evaluating Goodwill Impairment

In December 2020, the Financial Accounting Standards Board (FASB) issued a proposed Accounting Standards Update (ASU) over Intangibles—Goodwill and Other (Topic 350). The FASB is accepting comments from stakeholders through January 20, 2021. The proposed ASU could offer management an alternative when determining and measuring if there has been any impairment of goodwill due to a triggering event. Under current accounting principles generally accepted in the United States of America (U.S. GAAP), management evaluates whether impairment has incurred and measures the amount of the impairment as of the date of the triggering event. The proposed ASU would allow management to evaluate and measure the impairment caused by the triggering event as of their year-end reporting date. This potential accounting alternative would be available to private companies that only prepare external financial statements annually, (for example a commercial business presenting annual financial statements to their lender as part of their covenants in their debt agreement). By aligning the date of the impairment test with the company’s year-end, the FASB anticipates stakeholders could see a reduction of costs and complexity when accounting for impairment caused by a triggering event. Private companies typically produce cash flow projections and balance sheets as of their year-end date. The proposed ASU would allow private companies to use those same statements and projections rather than producing special statements and projections as of an interim triggering event date.

If approved, the proposed ASU will be effective for reporting periods beginning after December 15, 2019 — in other words, for companies with a year-end of December 31, 2020 or later.  Early adoption would be available for companies who have not yet issued their financial statements. Also, the proposed ASU is an alternative election; companies can continue to evaluate and measure impairment as of the date of the triggering event if they so desire.

For more information or a discussion on how this may impact you, please contact your BNN advisor at 800.244.7444.

Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, investment, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.