Recently the FASB issued an Accounting Standards Update to permit private companies to amortize goodwill acquired in a business combination, and to apply a simplified goodwill impairment model. This change is intended to help reduce reporting complexity for private companies; however, private companies should carefully consider this alternative, especially for those considering an initial public offering.
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Private company accounting alternatives on goodwill
Companies must consider these benefits in the context of their long term strategic objectives and the new definition of a public company per the FASB. A private company that elects the goodwill alternative may incur additional costs and complexity in later periods if it later meets the definition of a public company (e.g., files a Form S-1). Also, companies should ensure that key financial statement users, such as lenders, will accept the alternative, and should consider any economic consequences, such as the impact on debt covenant compliance, that will arise from increased amortization expense.
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