On May 30, 2019, the Financial Accounting Standards Board (FASB) released Accounting Standards Update (ASU) 2019-06, a standard extending relief to not-for-profit entities with goodwill and certain identifiable intangible assets resulting from a business combination.
The standard allows all not-for-profit entities to apply accounting alternatives that were formerly only available to private companies under ASU 2014-02 (goodwill accounting) and ASU 2014-18 (intangible asset accounting). These alternatives are expected to reduce the cost and effort associated with the subsequent accounting for goodwill and measurement of certain identifiable intangible assets acquired.
Keep in mind that the FASB has a project on its agenda covering the subsequent accounting model for goodwill and identifiable intangible assets, for all entities, and thus this guidance in ASU 2019-06 could be amended in the future.
Under the new standard, goodwill would be amortized over a period of 10 years (or less, if substantiated), and only tested for impairment upon a triggering event, instead of annually. Also, the policy election provide the option to test for impairment at the entity level or the reporting unit level.
After adoption of the standard, not-for-profits are also permitted to include into goodwill for amortization any new instances of the following:
- non-compete agreements
- acquired customer-related intangible assets, provided those intangibles are not capable of being sold or licensed independently from the other assets of the acquired business
Effective Date and Implementation
This standard is effective immediately with no requirement for not-for-profit entities to demonstrate preferability for users of the financial statements. Not-for-profit entities who desire to make this accounting policy election should discuss this with all users of the financial statements prior to making the election.
The goodwill accounting alternative may be elected without electing the intangible asset accounting alternative; however, the goodwill accounting alternative must be elected if the intangible asset accounting alternative is elected.
For new goodwill after the date of adoption, this accounting alternative should be applied prospectively. Goodwill existing at the date of adoption should be amortized prospectively as of the beginning of the period of adoption.
For new in-scope intangible assets after the date of adoption, this accounting alternative should be applied prospectively. Customer-related intangible assets and non-compete agreements that exist as of the beginning of the period of adoption are excluded from application under this standard and should not be included in goodwill.
We at Barnes Dennig see this as a big win for not-for-profit entities and are available for any consultation on the topic as you consider its impact. Contact us here if you wish to discuss ASU 2019-06 with a member of our team.