PROJECT UPDATE

Extending Private Company Accounting Alternatives on Certain Identifiable Intangible Assets and Goodwill to Not-for-Profit Entities

Last updated on April 19, 2019. Please refer to the Current Technical Plan for information about the expected release dates of exposure documents and final standards.

(Sections updated on the date above are indicated with an asterisk *)

 

Objective:

The objective of this project is to extend all the elements of the private company alternatives (issued in Accounting Standards Updates No. 2014-02, Intangibles—Goodwill and Other (Topic 350): Accounting for Goodwill, and No. 2014-18, Business Combinations (Topic 805): Accounting for Identifiable Intangible Assets in a Business Combination, to not-for-profit organizations, including:
  1. Amortizing goodwill, testing goodwill for impairment upon a triggering event, and testing impairment either at a reporting unit or the entity level
  2. Subsuming certain customer-related intangible assets and all noncompete agreements into goodwill.

Background:

In 2001, the FASB issued Statement No. 142, Goodwill and Other Intangible Assets, superseding APB 17, Intangible Assets, which required the amortization of goodwill and introduced the goodwill impairment model.  Statement No. 164, Not-for-Profit Entities: Mergers and Acquisitions, addressed more details unique to not-for-profits.  Since then, the FASB has issued various pieces of guidance to resolve stakeholders’ concerns about cost and complexity surrounding the goodwill impairment model.  In 2014, the FASB issued Updates 2014-02 and 2014-18 for private companies in response to stakeholders’ feedback that the benefits of the current accounting did not justify the related costs.  Those Updates simplified the subsequent accounting for goodwill and the accounting for certain identifiable intangible assets.  On October 24, 2018, the Board decided to add to its technical agenda a project on extending the private company alternatives from the two Updates to not-for-profits.

Not-for-profit goodwill arises less frequently than for-profit goodwill and stems from two general types of transactions.  The first type of transaction is when a not-for-profit acquires a for-profit entity; this occurs mostly in the healthcare sector.  The second type of transaction that results in NFP goodwill occurs when a not-for-profit acquires an entity in a net deficit position and the combined entity is predominantly supported by fee-for-service revenues.

Exposure Draft(s):

On December 20, 2018, the Board issued a proposed Accounting Standards Update, Intangibles—Goodwill and Other (Topic 350), Business Combinations (Topic 805), and Not-for-Profit Entities (Topic 958): Extending Private Company Accounting Alternatives on Certain Identifiable Intangible Assets and Goodwill to Not-for-Profit Entities. The due date for comment letters was February 18, 2019.
  • Download the December 20, 2018 proposed Accounting Standards Update, Intangibles—Goodwill and Other (Topic 350), Business Combinations (Topic 805), and Not-for-Profit Entities (Topic 958): Extending Private Company Accounting Alternatives on Certain Identifiable Intangible Assets and Goodwill to Not-for-Profit Entities.
Comment Letters:

There are no media releases or educational materials at this time.

Decisions Reached at Last Meeting (as of April 10, 2019):

The Board discussed comment letter and other stakeholder feedback and redeliberated the proposed Accounting Standards Update, Intangibles—Goodwill and Other (Topic 350), Business Combinations (Topic 805), and Not-for-Profit Entities (Topic 958): Extending the Private Company Accounting Alternatives on Goodwill and Certain Identifiable Intangible Assets to Not-for-Profit Entities.

The Board decided to permit a not-for-profit entity (NFP) to elect the accounting alternatives described in Accounting Standards Updates No. 2014-02, Intangibles—Goodwill and Other (Topic 350): Accounting for Goodwill, and No. 2014-18, Business Combinations (Topic 805): Accounting for Identifiable Intangible Assets in a Business Combination.  The Board decided to extend the Topic 805 alternative without modifications and decided to permit an NFP conduit bond obligor to elect the same accounting alternatives.

Consistent with the current requirement for NFPs to present expenses by both nature and function, the Board decided that an NFP is required to functionalize goodwill amortization. The Board also decided that the guidance on functionalizing goodwill amortization is sufficient.
The Board considered comments raised by comment letter respondents concerning the presentation in health care organization financial statements, the amortization period, and the application of the alternatives in specific financial structures. The Board decided that the current guidance is sufficient for these areas.

The Board also decided that an NFP should apply the transition guidance in the private company accounting alternatives, which requires prospective application for new goodwill recognized, prospective amortization of existing goodwill, and prospective application for newly acquired eligible identifiable intangible assets. The Board decided that NFPs should not subsume existing customer-related intangible assets and noncompete agreements into goodwill upon adoption of the accounting alternative.

The Board decided not to specify an effective date; thus, NFPs electing to adopt these alternatives would not have to demonstrate preferability and would follow the transition guidance above the first time they elect to adopt the alternatives.

The Board directed the staff to draft a final Update for vote by written ballot.
 
Tentative Board Decisions Reached to Date (as of April 10, 2019):

A summary of decisions reached to date can be found here.

The Board meeting minutes, handouts, and videos 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.  To view Board meetings and handouts from the past 90 days, click here.
 
April 10, 2019* Board Meeting—The Board discussed comment letter and stakeholder feedback and redeliberated the proposed Accounting Standards Update, Intangibles—Goodwill and Other (Topic 350), Business Combinations (Topic 805), and Not-for-Profit Entities (Topic 958): Extending the Private Company Accounting Alternatives on Goodwill and Certain Identifiable Intangible Assets to Not-for-Profit Entities.
October 24, 2018 Board Meeting—The Board added the project to the technical agenda and directed the staff to draft a proposed Accounting Standards Update.

The Board directed the staff to draft a final Update for vote by written ballot to extend the amendments in Updates 2014-02 and 2014-18 to not-for-profit entities.

Joy Sy
Supervising Project Manager
jsy@fasb.org

Emma Lazar
Postgraduate Technical Assistant
elazar@fasb.org

Daniel Verburg
Postgraduate Technical Assistant
dverburg@fasb.org

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

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