3.2 Scope of the Goodwill Accounting Alternatives
ASC 350-20
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:
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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
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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.
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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).
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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.
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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.
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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.
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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:
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Contributions of significant amounts of resources from resource providers who do not expect commensurate or proportionate pecuniary return
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Operating purposes other than to provide goods or services at a profit
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Absence of ownership interests like those of business entities.
Entities that clearly fall outside this definition include the
following:
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All investor-owned entities
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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.