In an effort to simplify accounting standards, the Private Company Council (PCC) recently voted to finalize an alternative for accounting for goodwill within US GAAP. The alternative is available for entities that recognize goodwill in accordance with Topic 805 except for public companies and not-for-profit entities. The PCC made three primary changes available to entities that qualify:
- Goodwill can be amortized over ten years or less than ten years if the entity can demonstrate another life is more appropriate.
- A qualifying entity can perform the impairment testing at the entity-level or the reporting unit level.
- Step two of the impairment test is eliminated whereby the impairment represents the excess of the entity’s carrying amount over its fair value.
The alternative goodwill accounting guidance would be applied prospectively for goodwill existing as of the beginning of the period of adoption beginning after December 15, 2014. Early adoption is permitted.
The Final Accounting Standards Update (ASU) is expected to be issued later this year or early next year. The following link describes this change in more detail. Feel free to contact us regarding any questions you may have.
If you have any questions, please contact us at (713) 667-9147.