Private companies and nonprofit organizations got some breathing room on goodwill accounting this week. The Financial Accounting Standards Board published an update to U.S. accounting rules that allows private companies and nonprofits to only test for goodwill impairments at the time they are closing their books, instead of when triggering events occur.

The accounting standards update (ASU) provides an accounting alternative that allows private companies and not-for-profit organizations to perform a goodwill triggering event assessment, and any resulting test for goodwill impairment, as of the end of the reporting period, whether the reporting period is an interim or annual period.

Under current generally accepted accounting principles (GAAP), goodwill must be tested for impairment when a triggering event occurs that indicates that it is more likely than not that the fair value of the reporting unit is below its carrying value. Companies and organizations are required to monitor for and evaluate goodwill triggering events when they occur throughout the year.

But some stakeholders raised questions about the value of evaluating a triggering event at an interim date when certain private companies and not-for-profit organizations only issue GAAP-compliant financial statements on an annual basis, FASB said.

“They noted the cost and complexity of preparing interim balance sheets and projecting cash flows that, according to those stakeholders, may not be relevant at the annual reporting date when financial statements are issued,” added FASB.

The amendments in the ASU are effective on a prospective basis for fiscal years beginning after December 15, 2019. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance as of March 30, 2021.

FASB is in the middle of a project that would change how all entities account for goodwill and identifiable intangible assets. The majority of the board, FASB chair Richard Jones told CFO this month, is interested in pursuing an amortization with impairments model. If the standard moves in that direction, FASB could also change how issuers test for impairments, Jones said.

Many comments on FASB’s proposal have noted the important signals the current impairment testing model provides to investors, in particular the insight it may give into management’s skill and ability.

“One user noted that the initial valuation and subsequent stewardship of goodwill is one of the most useful ways to assess strategic judgment and management skill, including whether management overpaid or failed to realize predicted synergies,” said FASB in a document summarizing comments it received.

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