Project Update

Accounting for Goodwill for Public Business Entities and Not-for-Profits

Last updated on March 31, 2014. Please refer to the Current Technical Plan for information about the expected release dates of exposure documents and final standards.

(Updated sections are indicated with an asterisk *)

The staff has prepared this summary of Board decisions for information purposes only. Those Board decisions are tentative and do not change current accounting. Official positions of the FASB are determined only after extensive due process and deliberations.

Project Objective
Due Process Documents
*Decisions Reached at Last Meeting
*Summary of Decisions Reached to Date
*Next Steps
*Board/Other Public Meeting Dates
Background Information
*Contact Information

Project Objective

The objective of this project is to reduce the cost and complexity of the subsequent accounting for goodwill for public business entities and not-for-profit entities (NFPs).

Due Process Documents

On November 25, 2013 the Board added accounting for goodwill for public business entities and NFPs to the agenda. No documents have been issued to date.

*Decisions Reached at Last Meeting (March 26, 2014)

The Board continued its discussion of how a public business entity and not-for-profit entity would account for goodwill after a business combination. The Board is considering the following alternatives:
  1. Amortize goodwill over 10 years or less than 10 years if an entity demonstrates that another useful life is more appropriate. An entity would make an accounting policy election to test goodwill for impairment at the entity level or at the reporting unit level. It would test goodwill for impairment only when a triggering event occurs. An impairment loss would be measured as the difference between the carrying value of the entity and its fair value (if goodwill is tested for impairment at the entity level) or the carrying value of the reporting unit and its fair value (if goodwill is tested for impairment at the reporting unit level). This alternative is consistent with the alternative available for private companies.
  2. Amortize goodwill with impairment tests over its useful life, not to exceed a maximum number of years.
  3. The direct writeoff of goodwill at the acquisition date.
  4. A nonamortization approach that uses a simplified impairment test.
The staff updated the Board on the outcome of additional research and outreach conducted on the direct writeoff approach and the simplified impairment test, undertaken after the February 12, 2014 Board meeting.

The Board made no decisions at this meeting.

*Summary of Decisions Reached to Date (As of March 26, 2014)

See “Decisions Reached at Last Meeting” above.

*Next Steps

The Board deferred any further discussion until after the IASB has completed and issued findings on its post-implementation review of IFRS 3, Business Combinations (expected later in 2014).

Please see the Current Technical Plan for more information about the projected timeline.

*Board/Other Public Meeting Dates

The Board meeting minutes are provided for the information and convenience of constituents who want to follow the Board’s deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions become final only after a formal written ballot to issue a final standard.

The following are links to the minutes for each meeting.

*March 26, 2014 Board Meeting—Further discussed potential models for subsequent measurement of goodwill for public business entities and not-for-profits.
February 12, 2014 Board Meeting—Discussed potential models for subsequent measurement of goodwill for public business entities and not-for-profits.
November 25, 2013 Board Meeting—Added Project to Board agenda

Background Information

In 2001, FASB Statement No. 142 Goodwill and Other Intangible Assets replaced APB Opinion No. 17, Intangible Assets (issued in 1970). Opinion No. 17 required amortization of goodwill over its useful life, not to exceed 40 years. Statement 142 eliminated goodwill amortization for financial reporting purposes and instead required that goodwill be tested for impairment at least annually using a two-step process. In the first step, a reporting entity compares the fair value of its reporting units with their carrying value, including goodwill. If the carrying amount of a reporting unit is greater than its fair value, a reporting entity must calculate the implied fair value of goodwill by performing a hypothetical application of the acquisition method as of the date of the impairment test. The goodwill impairment, if any, is equal to the excess of the carrying amount of goodwill over its implied fair value.

In 2011, due to concerns about the cost and complexity of the annual goodwill impairment test, the Board developed an optional qualitative impairment test as a screen for companies to assess whether it is more likely than not that goodwill is impaired before performing the quantitative two-step impairment test (FASB Accounting Standards Update No. 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment).

In November 2013, the Board endorsed the Private Company Council (PCC) decision to give private companies an alternative to amortize goodwill and simplify the impairment test. For further information on the alternative, see the Summary of Board Decisions . As a result of feedback that indicates that many public business entities and NFPs share similar concerns related to the cost and complexity of the annual goodwill impairment test, the Board added this project to its agenda.

*Contact Information

Jennifer Hillenmeyer
Practice Fellow
jhillenmeyer@fasb.org

Victoria McMillen
Postgraduate Technical Assistant
vmmcmillen@fasb.org