5.5 Presentation and Disclosure Requirements for Private Companies and NFPs That Have Elected the Goodwill Accounting Alternatives

ASC 350-20-45-6 requires that entities that have elected to amortize goodwill present the “amortization and aggregate amount of impairment of goodwill . . . in income statement or statement of activities line items within continuing operations (or similar caption) unless the amortization or a goodwill impairment loss is associated with a discontinued operation.” By contrast, the amortization and goodwill impairment loss related to a discontinued operation must be “included (on a net-of-tax basis) within the results of discontinued operations.” See ASC 205-20 and Deloitte’s Roadmap Impairments and Disposals of Long-Lived Assets and Discontinued Operations for more information about discontinued-operations reporting.

ASC 350-20-35-84 gives private companies and NFPs the option of only assessing, as of the end of each reporting period, whether a goodwill impairment triggering event exists and, if so, whether it is more likely than not that goodwill is impaired. Therefore, such entities would only need to perform the evaluation of goodwill impairment triggering events as of the end of an interim or annual reporting period, as applicable (see Section 3.9 for more information). Under ASC 350-20-50-3B, an entity that elects this option must disclose “its use of the alternative as a significant accounting policy.”

We believe that entities should also disclose election of the goodwill amortization alternative as a significant accounting policy.

ASC 350-20-50-6 requires that private companies and NFPs disclose, for each goodwill impairment loss recognized, a “description of the facts and circumstances leading to the impairment” and the “amount of the impairment loss and the method of determining the fair value of the entity or the reporting unit.” Private companies and NFPs must also disclose the income statement line item “in which the impairment loss is included,” since they are not required to present goodwill impairment losses as a separate line item in the income statement. Further, such entities must disclose the “method of allocating the impairment loss to the individual amortizable units of goodwill.”

The information about goodwill impairment losses should continue to be disclosed in the footnotes until such losses are no longer presented in the income statement.

As discussed in Section 3.6.1, an entity’s (reporting unit’s) fair value is determined in accordance with ASC 820. Accordingly, an entity must provide the disclosures required by ASC 820-10-50 about its fair value measurements. While an entity is subject to the disclosure requirements of ASC 820-10- 50, ASC 350-20 includes one incremental disclosure requirement and one exception from ASC 820’s disclosure requirements for goodwill. ASC 350-20-50-2(b) also requires disclosure of “the method of determining the fair value of the associated reporting unit (whether based on quoted market prices, prices of comparable businesses or nonprofit activities, a present value or other valuation technique, or a combination thereof).” However, ASC 350-20-50-7 includes an exception to the requirements of ASC 820-10-50 and states that the “quantitative disclosures about significant unobservable inputs used in fair value measurements categorized within Level 3 of the fair value hierarchy required by paragraph 820-10-50-2(bbb) are not required for fair value measurements related to the financial accounting and reporting for goodwill after its initial recognition.”

In addition, as discussed in Section 5.2.6, goodwill impairment fair value measurements are generally considered nonrecurring. The disclosure requirements for nonrecurring fair value measurements under ASC 820-10-50 are less extensive than those for recurring fair value measurements.

See Deloitte’s Roadmap, Fair Value Measurements and Disclosures (Including the Fair Value Option) for more information about the disclosure requirements related to fair value measurements.