Private companies that adhere to U.S. generally accepted accounting principles (GAAP) will soon have more options when it comes to accounting for goodwill and for interest rate swaps. On Thursday, the Financial Accounting Standards Board issued two updates to GAAP. Any private company that doesn’t qualify as a “public business entity” under FASB’s Private Company Decision-Making Framework can choose to either adopt the alternatives or stick with the existing standards.

The goodwill alternative will allow private companies that adhere to GAAP to amortize goodwill on a straight-line basis over 10 years or less. They will no longer have to do annual impairment tests, which can be onerous and costly. Instead, they would only perform an impairment test in the case of a triggering event, like a substantial decline in operating results or the loss of a key employee. The new standard also removes a costly second step from the impairment test and allows companies that adopt the alternative to do the test at an entity-wide level, rather than a reporting unit level.

The interest rate swap alternative would allow private companies “to use a simplified hedge accounting approach to account for interest rate swaps that are entered into for the purpose of economically converting variable-rate interest payments to fixed-rate payments,” FASB wrote in a release. Under this alternative, the interest expense on the income statement will be similar to what a company would have recorded if it had directly entered into a fixed-rate borrowing rather than a variable-rate borrowing and an interest rate swap.

Look out for more details on the new goodwill standard in CFO’s upcoming special report on financial reporting.

2 responses to “FASB Issues New Private Company Accounting Alternatives”

  1. It will be interesting to see how private companies will adapt to these new standards, I work for McGladrey and there’s a whitepaper on our website about financial statement audits that readers of this article may find it useful. “Getting the full picture: Financial statement audits versus quality of earnings analysis” @

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