Chapter 8 — Private-Company and Not-for-Profit Entity Accounting Alternatives
In 2012, the Financial Accounting Foundation, which oversees the
FASB, established the Private Company Council (PCC) to improve the process of
setting accounting standards for private companies. As the primary advisory body to
the FASB on private-company matters, the PCC uses the private-company
decision-making framework to guide the FASB on the appropriate accounting treatment
for private companies for items under active consideration on the FASB’s technical
agenda. The framework focuses on user relevance and cost-benefit considerations for
private companies as potential justifications for establishing alternative guidance.
Any proposed changes to GAAP must be endorsed by the FASB.
In 2014, the FASB issued ASU 2014-02 and ASU 2014-18, which
offered entities other than PBEs and not-for-profit entities simplified accounting
alternatives for certain identifiable intangible assets acquired in a business
combination and the subsequent accounting for goodwill. The alternatives were
initially developed by the PCC on the basis of feedback from private companies and
their stakeholders about the costs and complexities associated with the accounting
for certain identifiable intangible assets and the goodwill impairment test.
When the Board issued ASUs 2014-02 and 2014-18, it was aware that
the issues addressed in them were not limited to private companies but decided not
to extend the alternatives to PBEs or not-for-profit entities at that time. The
Board received feedback from not-for-profit stakeholders that “questioned the
relevance of an impairment-only approach to goodwill as well as input that the
benefits of the current accounting for goodwill and identifiable intangible assets
acquired in an acquisition by a not-for-profit entity do not justify the related
costs.” Accordingly, it added a project to its agenda to determine whether to extend
the private-company alternatives to not-for-profit entities. In May 2019, the Board
issued ASU
2019-06, which gives not-for-profit entities the option to elect
the same alternative approaches to account for certain identifiable intangible
assets acquired in a business combination and goodwill. The guidance in ASU 2019-06
became effective upon its issuance. A not-for-profit entity should apply the
goodwill accounting alternative, if elected, prospectively for all existing goodwill
and for all new goodwill generated in acquisitions. It should apply the intangible
assets accounting alternative, if elected, prospectively upon the occurrence of the
first transaction within the scope of the alternative.