New Goodwill Alternative Affects Private Companies

| Business Miscellaneous

By Chris Mennel     If your company has goodwill on its balance sheet, you may be affected by a new standard issued by the Financial Accounting Standards Board (FASB) in 2014.  This new standard provides an alternative to how goodwill is currently reported making it permissible for private companies to amortize goodwill.  Over time, the FASB has gone back and forth on this topic.  This isn’t the first time companies have been able to amortize goodwill for financial reporting purposes.

Amortization Period

Under the new guidelines, a 10-year amortization period is to be used unless a shorter period can be justified.  The new standard is effective for annual periods beginning after December 15, 2014 (calendar year 2015 if your company has a 12-31 year end) but early adoption is allowed.  If you’d like to early adopt this standard and have not issued your 2014 statements yet, you may be able to record a full year of amortization in 2014 for any existing goodwill on your company’s balance sheet.

No More Annual Analysis?

Yes and no.  One of the goals of the new standard was to make goodwill reporting easier for private companies.  A company electing the alternative method for goodwill no longer has to perform an annual impairment analysis unless a “triggering event” occurs during the year.  Further, if an impairment analysis is required, it can be performed at the company-wide level rather than the reporting-unit level, which is currently required, and is oftentimes much more difficult to perform.

Important Notes about the New Goodwill Standard

Although this goodwill alternative is considered to be part of U.S. Generally Accepted Accounting Principles, it is an exception for private companies only.  This means that publicly traded companies and non-profits cannot elect this alternative method.

A company’s choice of whether or not to amortize goodwill for financial reporting purposes does not affect the tax treatment of goodwill.

If you’d like to discuss how the goodwill alternative affects your company, please contact Chris Mennel, 317-569-4181 ext. 260 or cmennel@alerdingcpagroup.com.  Alerding CPA Group is an Indianapolis-based public accounting firm. Visit our website: www.alerdingcpagroup.com.

This post was written by:

Christopher Mennel, CPA
Audit Manager

Chris oversees audit and accounting services, not-for-profit and consulting services. Chris’ specialties include manufacturing, distribution/wholesale, retail, health and welfare, service and civic organizations. Chris also prepares financial statement projections and other financial analyses.
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