Chapter 3 — Goodwill Accounting Alternatives for Private Companies and NFPs

3.2 Scope of the Goodwill Accounting Alternatives

ASC 350-20

Accounting Alternatives

15-4 A private company or not-for-profit entity may make an accounting policy election to apply the accounting alternative for amortizing goodwill in this Subtopic to the following transactions or activities:

Goodwill that an entity recognizes in a business combination in accordance with Subtopic 805-30 or in an acquisition by a not-for-profit entity in accordance with Subtopic 958-805 after it has been initially recognized and measured
Amounts recognized as goodwill in applying the equity method of accounting in accordance with Topic 323 on investments — equity method and joint ventures, and to the excess reorganization value recognized by entities that adopt fresh-start reporting in accordance with Topic 852 on reorganizations.

Pending Content (Transition Guidance: ASC 805-60-65-1)

15-4 A private company or not-for-profit entity may make an accounting policy election to apply the accounting alternative for amortizing goodwill in this Subtopic. The guidance in the Accounting Alternatives Subsections of this Subtopic applies to the following transactions or activities:

Goodwill that an entity recognizes in a business combination in accordance with Subtopic 805-30, in an acquisition by a not-for-profit entity in accordance with Subtopic 958-805, or in a joint venture formation in accordance with Subtopic 805-60 after it has been initially recognized and measured
Amounts recognized as goodwill in applying the equity method of accounting in accordance with Topic 323 on investments — equity method and joint ventures, and to the excess reorganization value recognized by entities that adopt fresh-start reporting in accordance with Topic 852 on reorganizations.

15-4A A private company or not-for-profit entity may make an accounting policy election to apply the accounting alternative for a goodwill impairment triggering event evaluation to goodwill subsequently accounted for in accordance with Subtopic 350-20.

15-5 An entity within the scope of paragraph 350-20-15-4 or paragraph 350-20-15-4A that elects the accounting alternative for amortizing goodwill or the accounting alternative for goodwill impairment triggering event evaluation shall apply all of the related subsequent measurement, derecognition, other presentation matters, and disclosure requirements upon election. An accounting alternative, once elected, shall be applied to existing goodwill and to all additions to goodwill recognized in future transactions within the scope of that accounting alternative.

15-6 An entity that elects either of the accounting alternatives in this Subtopic is not required to elect or precluded from electing the other alternative.

ASC 350-20-15-6 clarifies that an entity that elects either of the goodwill accounting alternatives “is not required to elect or precluded from electing the other alternative.” Thus, a private company or NFP can elect one of the goodwill accounting alternatives but not the other. However, once elected, the alternative must be applied consistently. If an entity stops applying one or both of the goodwill accounting alternatives, this would be a change in accounting principle. Once elected, the alternatives must be applied to existing goodwill and to all additions to goodwill.

3.2.1 Definitions

The goodwill accounting alternatives are available to private companies and NFPs. The following sections provide guidance on determining whether a reporting entity is a private company or an NFP.

3.2.1.1 Definition of PBE

An entity must first determine whether it meets the definition of a PBE, since PBEs cannot apply the goodwill accounting alternatives. The ASC master glossary defines a PBE as follows:

A public business entity is a business entity meeting any one of the criteria below. Neither a not-for-profit entity nor an employee benefit plan is a business entity.

It is required by the U.S. Securities and Exchange Commission (SEC) to file or furnish financial statements, or does file or furnish financial statements (including voluntary filers), with the SEC (including other entities whose financial statements or financial information are required to be or are included in a filing).
It is required by the Securities Exchange Act of 1934 (the Act), as amended, or rules or regulations promulgated under the Act, to file or furnish financial statements with a regulatory agency other than the SEC.
It is required to file or furnish financial statements with a foreign or domestic regulatory agency in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer.
It has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market.
It has one or more securities that are not subject to contractual restrictions on transfer, and it is required by law, contract, or regulation to prepare U.S. GAAP financial statements (including notes) and make them publicly available on a periodic basis (for example, interim or annual periods). An entity must meet both of these conditions to meet this criterion.

An entity may meet the definition of a public business entity solely because its financial statements or financial information is included in another entity’s filing with the SEC. In that case, the entity is only a public business entity for purposes of financial statements that are filed or furnished with the SEC.

See Sections 8.1.1 through 8.1.3 of Deloitte’s Roadmap Business Combinations for additional considerations related to determining whether an entity qualifies as a PBE.

3.2.1.2 Definition of Private Company

The ASC master glossary defines a private company as “[a]n entity other than a public business entity, a not-for-profit entity, or an employee benefit plan within the scope of Topics 960 through 965 on plan accounting.”

3.2.1.3 Definition of NFP

The ASC master glossary defines an NFP as follows:

An entity that possesses the following characteristics, in varying degrees, that distinguish it from a business entity:

Contributions of significant amounts of resources from resource providers who do not expect commensurate or proportionate pecuniary return
Operating purposes other than to provide goods or services at a profit
Absence of ownership interests like those of business entities.

Entities that clearly fall outside this definition include the following:

All investor-owned entities
Entities that provide dividends, lower costs, or other economic benefits directly and proportionately to their owners, members, or participants, such as mutual insurance entities, credit unions, farm and rural electric cooperatives, and employee benefit plans.

The accounting alternatives are available to all NFPs that meet the definition of this term in the ASC master glossary. These include both public and private NFPs and those that are conduit bond obligors.

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This publication provides comprehensive guidance; however, it does not address all possible fact patterns, and the guidance is subject to change. Consult a Deloitte & Touche LLP professional regarding your specific issues and questions.