Author: Nate Kohler
During 2014, the Financial Accounting Standards Board (FASB) issued an update of the accounting treatment of Goodwill for private companies. After research and outreach with private company stakeholders, it was determined that benefit of the current goodwill tests did not outweigh the related costs and provided limited decision useful information.
Current U.S. GAAP requires that goodwill of a reporting unit be tested for impairment at least annually and more frequently if certain conditions exist. An entity can then either chose to perform a qualitative assessment or can proceed directly to step one of the impairment test to determine if the carrying amount of the reporting unit exceeds the fair value.
Under the amendments in this update, an entity can elect the accounting alternative within U.S. GAAP should amortize goodwill on a straight-line basis over ten years, or less than ten years if the entity demonstrates that another useful life is more appropriate. Goodwill must then be tested for impairment when a “triggering event” occurs. A “triggering event” would indicate that the carrying value of the entity exceeds the fair value.
This accounting update is important to all companies, including manufacturing companies, as it greatly simplifies the complex nature of the current goodwill accounting standard and reduces costs.
Let the planning begin
My girlfriend and I recently became engaged. Fortunately, it did not take as much pleading as I thought. We now look forward to planning a destination wedding.