The FASB and PCC have issued a new accounting standard for private companies that is intended to simplify the goodwill accounting model.
On January 16, 2014, the FASB issued ASU No. 2014-02, Accounting for Goodwill.
For private companies, the new standard represents a fundamental overhaul of the existing accounting model for goodwill. A private company that elects to adopt the alternative will be able to both amortize goodwill and apply a simplified goodwill impairment test. Adoption of the standard is optional, so a private company can continue to apply the existing goodwill accounting model.
A company considering adopting the alternative should carefully review the definition of a public business entity, as defined in ASU 2013-12, Definition of a Public Business Entity, to ensure eligibility. Before adopting, an eligible private company should carefully weigh both the impact of applying the standard on its key financial metrics, and the potential cost of unwinding the accounting and reapplying the existing goodwill accounting standard if its reporting requirements change because it no longer meets the definition of a private company.
The standard is effective for annual periods beginning after December 15, 2014 and interim periods within annual periods beginning after December 15, 2015. Early adoption is permitted.
The appendix to this Dataline discusses the private company goodwill accounting alternative. It serves as an insert to Chapter 11, “Accounting for Goodwill Postacquisition – U.S. GAAP,” in our 2013 Global Guide to Accounting for Business Combinations and Noncontrolling Interests.