On December 21, 2020, the Financial Accounting Standards Board (FASB) issued a proposed Accounting Standards Update (ASU), Intangibles—Goodwill and Other (Topic 350): Accounting Alternative for Evaluating Triggering Events, which would provide an additional goodwill impairment alternative for private companies and not-for-profit entities (both as defined in the Master Glossary of the FASB’s Accounting Standards Codification [ASC]) that only report goodwill, or any account that would be affected by goodwill impairment (e.g., total assets, retained earnings, net income), in accordance with U.S. generally accepted accounting principles (GAAP) on an annual basis. As drafted, private companies and not-for-profit entities that report GAAP-compliant goodwill (or any account that would be affected by goodwill impairment) to a lender (or other user of its financial statements) on an interim basis would not be eligible to elect the proposed alternative. 

The proposed alternative (if elected) would allow an eligible private company or not-for-profit entity to only perform any goodwill triggering event impairment test required by ASC 350-20-35-30 (when the preexisting goodwill amortization alternative has not been elected) or ASC 350-20-35-66 (when the preexisting goodwill amortization alternative has been elected) as of its annual reporting date (i.e., year end), rather than as of the triggering event date. The proposed alternative would not apply to equity-method goodwill. While the perceived need for this alternative was elevated as a consequence of the economic disruption attributable to the coronavirus pandemic, the proposed alternative would be applicable to the annual period in which it is elected, as well as all future annual periods to which that election applies.

If an eligible entity were to elect the proposed alternative, that election would have to be disclosed under ASC 235, “Notes to Financial Statements.”

The proposed alternative would be prospectively applied, and its effective date would be for financial statements with fiscal years beginning after December 15, 2019, with early adoption permitted in annual financial statements that have not been issued or made available for issuance at the point in time the final ASU is issued. In addition, the proposed ASU is expected to provide an unconditional one-time election to adopt the alternative prospectively after its effective date without assessing preferability under ASC 250, “Accounting Changes and Error Corrections.”

Comments on the proposed ASU, including the scope of entities eligible to elect the alternative, must be provided to the FASB by January 20, 2021 to ensure they are considered prior to the issuance of a final ASU.

The proposed alternative will only become part of U.S. GAAP after a final ASU is issued. There are numerous activities that must take place before then, including the FASB’s review of comments provided by constituents on the proposed ASU, redeliberations of the decisions included in the proposed ASU and the issuance of a final ASU. We expect the earliest a final ASU may be issued by the FASB to be the latter half of March 2021.