Chapter 8 — Private-Company Accounting Alternatives
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 ASUs 2014-02 and 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.
8.1 Definition of a PBE and a Private Company
The first step in determining whether an entity can apply the accounting alternatives is to ensure that the entity is not a PBE. An entity that meets the definition of a PBE cannot apply any of the private-company accounting alternatives.
In December 2013, the FASB issued ASU 2013-12 to incorporate the definition of a PBE into the ASC
master glossary and clarify which entities qualify for private-company financial accounting and reporting
alternatives. The ASU was issued, in part, because the previous guidance in U.S. GAAP contained several
definitions of “nonpublic entity” and “public entity,” which resulted in diversity in practice.
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.
The definition of a PBE excludes not-for-profit entities within the scope of ASC
958 and employee benefit plans within the scope of ASC 960 through ASC 965 on plan accounting. It
does not affect any existing ASC requirements.
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.”
8.1.1 Entities That File or Furnish Financial Statements With or to a Regulator, and Entities That Have Publicly Traded Securities
The FASB determined in ASU 2013-12 that financial statement users of entities that issue publicly
traded securities generally have less access to management than users of private-company financial
information, and they are typically a broader group with more diverse needs. The Board therefore
concluded that entities should be considered PBEs if they (1) file or furnish financial statements with or
to the SEC or another regulatory agency or (2) issue or trade securities. Further, an entity is considered
a PBE if its financial statements or financial information, such as the following, is required to be or is
included in a registrant’s SEC filing:
- Financial statements of significant acquired or to be acquired businesses under SEC Regulation S-X, Rule 3-05.
- Financial statements of significant equity method investees under SEC Regulation S-X, Rule 3-09.
- Summarized financial information of equity method investees under SEC Regulation S-X, Rule 4-08(g).
To ensure that the definition of a PBE encompassed entities that prepare U.S.
GAAP financial statements in other jurisdictions, the FASB included both foreign and domestic
regulators in it. However, the Board indicated that if an entity is considered a PBE only
because its financial information is included in the financial information of another entity
that furnishes or files financial statements to or with the SEC, the entity is considered a PBE
only for the financial statements filed with the SEC; the entity can apply the private-company
accounting alternatives in its stand-alone financial statements.
Similarly, the FASB concluded that private companies that are consolidated
subsidiaries of PBEs are not considered PBEs for stand-alone reporting purposes and are
therefore able to apply private-company accounting alternatives in their stand-alone financial
statements. This is because the information they provide may be useful to the users of the
stand-alone financial statements.
The FASB also decided that a private company that controls a public subsidiary should not be
considered a PBE. According to ASU 2013-12, “the financial reporting requirements of a public subsidiary
should not preclude a privately held entity from applying financial accounting and reporting alternatives
for private companies in its own financial statements.”
8.1.2 Conduit Bond Obligors
Conduit bond obligors indirectly access the public debt markets. In ASU 2013-12, the FASB noted that
users of such entities’ financial statements may have less access to management and related financial
information than most other private-company financial statement users do and that these entities have
a broad base of financial statement users; therefore, their users’ information needs may be similar to
those of the financial statements of public companies. Consequently, the FASB concluded that conduit
bond obligors should be considered PBEs for financial accounting and reporting purposes.
8.1.3 Employee Benefit Plans
The FASB concluded in ASU 2013-12 that the needs of the financial statement users of employee benefit plans are more focused than those of the financial statement users of public or private companies.
Further, the accounting guidance applied by employee benefit plans is often tailored to the plans. Accordingly, the Board excluded employee benefit plans from the definition of a PBE. Instead, the FASB decided to consider, “on a standard-by-standard basis, whether all, none, or some employee benefit plans should be permitted to apply financial accounting and reporting alternatives under U.S. GAAP, using factors such as user needs and resources.”
8.1.4 Not-for-Profit Entities
The ASC master glossary defines a not-for-profit entity as:
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 amendments in ASU 2019-06 apply to all not-for-profit entities as defined in
the ASC master glossary, including those that are conduit bond obligors. Paragraph BC14 of ASU
2019-06 notes that “[t]he Board chose not to distinguish between public not-for-profit entities
and nonpublic not-for-profit entities because the informational needs of users of financial
statements of both not-for-profit entity types are the same.”
8.2 Accounting Alternatives for Private Companies and Not-for-Profit Entities
The paragraphs below discuss the accounting alternatives for certain intangible assets and goodwill. Entities do not need to perform a preferability assessment the first time they elect such alternatives; however, any later change to an accounting policy election requires justification that the change is preferable under ASC 250.
Connecting the Dots
Before electing the private-company accounting alternatives, a private company
should consider whether it might become a PBE in
the future (e.g., the entity may file an IPO or
may be required to have its financial statements
included in a registrant’s filing under SEC
Regulation S-X, Rule 3-05). Neither the FASB nor
the SEC has provided relief or transition guidance
for private companies that have elected the
private-company accounting alternatives and later
become PBEs; thus, private companies that might
become PBEs should be cautious about electing
them. Private companies that do apply the
accounting alternatives and later become PBEs
would need to retrospectively remove the effects
of the accounting alternatives in any financial
statements filed with, or furnished to, the SEC.
The removal of such effects could become
increasingly complex as more time passes.
8.2.1 Accounting Alternative for Intangible Assets
ASC 805-20
Accounting Alternative
15-1A Paragraphs 805-20-15-2 through 15-4 and 805-20-25-29 through 25-33 provide guidance for an entity electing the accounting alternative in this Subtopic. See paragraph 805-20-65-2 for transition guidance for private companies and not-for-profit entities on applying the accounting alternative in this Subtopic.
15-2 A private company or not-for-profit entity may make an accounting policy election to apply the accounting alternative in this
Subtopic. The guidance in the Accounting Alternative Subsections of this Subtopic applies when a private
company or not-for-profit entity is required to recognize or otherwise consider the fair value of intangible assets as a result of any one
of the following transactions:
- Applying the acquisition method (as described in paragraph 805-10-05-4 for all entities and Subtopic 958-805 for additional guidance for not-for-profit entities)
- Assessing the nature of the difference between the carrying amount of an investment and the amount of underlying equity in net assets of an investee when applying the equity method of accounting in accordance with Topic 323 on investments — equity method and joint ventures
- Adopting fresh-start reporting in accordance with Topic 852 on reorganizations.
15-3 An entity that elects the accounting alternative shall apply all of the related recognition requirements upon
election. The accounting alternative, once elected, shall be applied to all future transactions that are identified
in paragraph 805-20-15-2.
15-4 An entity that elects
this accounting alternative must adopt the
accounting alternative for amortizing goodwill in
the Accounting Alternatives Subsections of Topic
350-20 on intangibles — goodwill and other. If the
accounting alternative for amortizing goodwill was
not adopted previously, it should be adopted on a
prospective basis as of the adoption of the
accounting alternative in this Subtopic. For
example, upon adoption, existing goodwill should
be amortized on a straight-line basis over 10
years, or less than 10 years if the entity
demonstrates that another useful life is more
appropriate. However, an entity that elects the
accounting alternative for amortizing goodwill is
not required to adopt the accounting alternative
in this Subtopic.
To achieve comparability, an entity should apply the accounting alternative to all eligible intangible assets. That is, if an entity adopts the accounting alternative for intangible assets, it cannot choose to recognize the customer-related intangible assets within its scope but subsume noncompetition agreements into goodwill. Furthermore, an entity that elects the accounting alternative for intangible assets must also adopt the accounting alternative for amortizing goodwill (see Section 8.2.2). “However, an entity that elects the accounting alternative for
amortizing goodwill is not required to adopt the accounting alternative” for intangible assets.
If elected, the accounting alternative would be applied prospectively to (1) all
intangible assets arising from business
combinations occurring after adoption and (2)
future transactions in which fresh-start reporting
is adopted. In addition, when determining basis
differences, an entity would apply it
prospectively to all equity method investments
acquired after adoption. The accounting
alternative cannot be applied to previously
recognized intangible assets (e.g., the option
would not affect intangible assets recognized from
previous business combinations).
8.2.1.1 Customer-Related Intangible Assets
ASC 805-20
25-30 An intangible asset is identifiable if it meets either the separability criterion or the contractual-legal
criterion described in the definition of identifiable. However, under the accounting alternative, an acquirer shall
not recognize separately from goodwill the following intangible assets:
- Customer-related intangible assets unless they are capable of being sold or licensed independently from other assets of a business
- Noncompetition agreements.
25-31 Customer-related intangible assets often would not meet criterion (a) in paragraph 805-20-25-30 for
recognition. Customer-related intangible assets that would meet that criterion for recognition under this
accounting alternative are those that are capable of being sold or licensed independently from the other assets
of a business. Examples of customer-related intangible assets are listed in paragraph 805-20-55-20. Many of
the customer-related intangible assets that would meet criterion (a) for recognition also would be considered
contract-based intangible assets as described in paragraph 805-20-55-31. Customer-related intangible assets
that may meet that criterion for recognition include but are not limited to:
- Mortgage servicing rights
- Commodity supply contracts
- Core deposits
- Customer information (for example, names and contact information).
Before the issuance of ASU 2014-18, many
stakeholders indicated that separately recognizing
customer-related intangible assets does not
provide decision-useful information unless the
contract giving rise to the asset could be sold
separately from the other assets of the business.
As a result, the PCC and FASB concluded that the
benefits of recognizing customer-related
intangible assets separately may not justify the
related costs. Consequently, ASC 805-20-25-30
gives private companies the option to subsume into
goodwill customer-related intangible assets unless
they are capable of being sold or licensed
independently from other assets of a business.
While many customer-related intangible assets
would meet that criterion, ASC 805-20-25-31
provides examples of such assets that generally
could be sold separately, including, but not
limited to, mortgage servicing rights, commodity
supply contracts, core deposits, and customer
information (e.g., names and contact
information).
Under this accounting alternative, favorable customer contracts would be
included in goodwill, but unfavorable customer
contracts would not because they are liabilities
and not within the alternative’s scope. However,
in paragraph BC20 of ASU 2014-18, the FASB noted
that “the concept of ‘at market’ is a broad range
and customer contracts generally are considered to
fall within the range that is considered ‘at
market.’ Therefore, most customer contracts do not
fall under the favorable-unfavorable contract
guidance.” Paragraph BC20 of ASU 2014-18 also
states, in part:
[S]ubsuming
a significant favorable contract into goodwill
will not necessarily create subsequent impairment
issues. FASB Accounting Standards Update No.
2014-02, Intangibles — Goodwill and Other
(Topic 350): Accounting for Goodwill, allows
reporting entities to choose a life for goodwill
that is less than 10 years. The PCC and the Board
concluded that significant favorable contracts
with a life shorter than 10 years may justify a
shorter useful life for goodwill. As a result, the
PCC and the Board concluded that favorable
customer contracts will be included within the
scope of this Update.
8.2.1.2 Noncompetition Agreements
Noncompetition agreements represent another category of intangible assets that are not separately recognized under this accounting alternative. In response to comments by stakeholders that noncompetition agreements are among the most subjective and difficult intangible assets to measure and that their value is disregarded by many users, the FASB determined that the benefits of recognizing them separately may not justify the related costs. Furthermore, the FASB indicates in paragraph BC19 of ASU 2014-18 that the “PCC and the Board chose not to require an assessment of whether a noncompetition agreement is capable of being sold or licensed separately from the other assets of a business because, in their view, noncompetition agreements will seldom, if ever, meet the criteria for recognition.”
8.2.1.3 Contract Assets
ASC 805-20
25-32 Contract assets, as used in Topic 606 on revenue from contracts with customers, are not considered to
be customer-related intangible assets for purposes of applying this accounting alternative. Therefore, contract
assets are not eligible to be subsumed into goodwill and shall be recognized separately.
The ASC master glossary defines a contract asset as “[a]n entity’s right to
consideration in exchange for goods or services
that the entity has transferred to a customer when
that right is conditioned on something other than
the passage of time (for example, the entity’s
future performance).” Contract assets are not
eligible for this accounting alternative. In
paragraph BC21 of ASU 2014-18, the FASB elaborates
on this decision as follows:
The PCC and the Board decided that contract
assets as defined in the Master Glossary and used
in Topic 606, Revenue from Contracts with
Customers, are not considered intangible assets
eligible to be subsumed into goodwill and
therefore are not within the scope of this Update.
In certain situations, an entity satisfies a
performance obligation but does not have an
unconditional right to consideration, for example,
because it first needs to satisfy another
performance obligation in the contract. That leads
to recognition of a contract asset. Once an entity
has an unconditional right to consideration, it
should present that right as a receivable
separately from the contract asset and account for
it in accordance with other guidance (for example,
Topic 310, Receivables). As a result, the PCC and
the Board concluded that it is inappropriate to
classify a contract asset as a customer-related
intangible asset at the acquisition date when the
contract asset will eventually be reclassified as
a receivable.
8.2.1.4 Leases
ASC 805-20
25-33 A lease is not considered to be a customer-related intangible asset for purposes of applying this
accounting alternative. Therefore, favorable and unfavorable leases are not eligible to be subsumed into
goodwill and shall be recognized separately.
ASU 2014-18 clarifies that leases are not
considered to be customer-related intangible assets. Therefore, favorable and unfavorable leases must
be recognized separately from goodwill.
8.2.1.5 Disclosures
There are no incremental disclosure requirements associated with this accounting alternative. As discussed in the Background Information and Basis for Conclusions of ASU 2014-18, the PCC and FASB determined that the disclosure requirements already in ASC 805 were sufficient for intangible assets that do not require separate recognition and that requiring additional disclosures could potentially offset any cost savings associated with an entity’s adoption of the accounting alternative.
8.2.2 Goodwill Accounting Alternative
ASC 350-20
Accounting Alternative
05-5
The Accounting Alternatives
Subsections of this Subtopic provide guidance for
the following:
- An entity within the scope of paragraph 350-20-15-4 that elects the accounting alternative for amortizing goodwill. If elected, this accounting alternative allows an eligible entity to amortize goodwill and test that goodwill for impairment upon a triggering event.
- An entity within the scope of paragraph 350-20-15-4A that elects the accounting alternative for a goodwill impairment triggering event evaluation. If elected, this accounting alternative allows an eligible entity to evaluate goodwill impairment triggering events only as of the end of each reporting period.
05-5A The accounting alternative guidance can be found in the following paragraphs:
- Scope and Scope Exceptions — paragraphs 350-20-15-4 through 15-6
- Subsequent Measurement — paragraphs 350-20-35-62 through 35-86
- Derecognition — paragraphs 350-20-40-8 through 40-9
- Other Presentation Matters — paragraphs 350-20-45-4 through 45-7
- Disclosure — paragraphs 350-20-50-3A through 50-7
- Implementation Guidance and Illustrations — paragraphs 350-20-55-26 through 55-29.
05-6 An entity should
continue to follow the applicable requirements in
Topic 350 for other accounting and reporting
matters related to goodwill that are not addressed
in the Accounting Alternatives Subsections of this
Subtopic.
Entities that elect the goodwill accounting alternative (1) amortize goodwill on
a straight-line basis over a useful life of 10
years, or less than 10 years if they can
demonstrate that a shorter useful life is more
appropriate, (2) test goodwill for impairment only
when a triggering event occurs instead of having
to perform the test at least annually, and (3)
test goodwill for impairment at either the entity
level or the reporting-unit level. In addition,
entities would be required to comply with the
accounting alternative’s requirements related to
subsequent measurement and disclosures.
ASC 350-20 provides the following guidance related to the goodwill accounting
alternative:
ASC 350-20
35-62 The following guidance
for goodwill applies to entities within the scope
of paragraph 350-20-15-4 that elect the accounting
alternative for amortizing goodwill.
35-63 Goodwill relating to
each business combination, acquisition by a
not-for-profit entity, or reorganization event resulting
in fresh-start reporting (amortizable unit of goodwill)
shall be amortized on a straight-line basis over 10
years, or less than 10 years if the entity demonstrates
that another useful life is more appropriate.
35-64 An entity may revise the remaining useful life of goodwill upon the occurrence of events and changes
in circumstances that warrant a revision to the remaining period of amortization. However, the cumulative
amortization period for any amortizable unit of goodwill cannot exceed 10 years. If the estimate of the
remaining useful life of goodwill is revised, the remaining carrying amount of goodwill shall be amortized
prospectively on a straight-line basis over that revised remaining useful life.
35-65 Upon adoption of this accounting alternative, an entity shall make an accounting policy election to
test goodwill for impairment at the entity level or the reporting unit level. An entity that elects to perform
its impairment tests at the reporting unit level shall refer to paragraphs 350-20-35-33 through 35-38 and
paragraphs 350-20-55-1 through 55-9 to determine the reporting units of an entity.
35-66 Goodwill of an entity
(or a reporting unit) shall be tested for
impairment if an event occurs or circumstances
change that indicate that the fair value of the
entity (or the reporting unit) may be below its
carrying amount (a triggering event). Paragraph
350-20-35-3C(a) through (g) includes examples of
those events or circumstances. Those examples are
not all-inclusive, and an entity shall consider
other relevant events and circumstances that
affect the fair value or carrying amount of the
entity (or of a reporting unit) in determining
whether to perform the goodwill impairment test.
For those entities that have elected the
accounting alternative for a goodwill impairment
triggering event evaluation in paragraph
350-20-35-84, a goodwill triggering event
evaluation shall be performed only as of the end
of each reporting period. If an entity determines
that there are no triggering events, then further
testing is unnecessary.
The Goodwill Impairment Test
35-67 Upon the occurrence of a triggering event, an entity may assess qualitative factors to determine whether
it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of the entity (or the
reporting unit) is less than its carrying amount, including goodwill. Paragraph 350-20-35-3C(a) through (g)
includes examples of those qualitative factors.
35-68 Because the examples included in paragraph 350-20-35-3C(a) through (g) are not all-inclusive, an entity
shall consider other relevant events and circumstances that affect the fair value or carrying amount of the
entity (or of the reporting unit) in determining whether to perform the quantitative goodwill impairment test. An
entity shall consider the extent to which each of the adverse events and circumstances identified could affect
the comparison of its fair value with its carrying amount (or of the reporting unit’s fair value with the reporting
unit’s carrying amount). An entity should place more weight on the events and circumstances that most affect
its fair value or the carrying amount of its net assets (or the reporting unit’s fair value or the carrying amount of
the reporting unit’s net assets). An entity also should consider positive and mitigating events and circumstances
that may affect its determination of whether it is more likely than not that its fair value is less than its carrying
amount (or the fair value of the reporting unit is less than the carrying amount of the reporting unit). If an entity
has a recent fair value calculation (or recent fair value calculation for the reporting unit), it also should include
that calculation as a factor in its consideration of the difference between the fair value and the carrying amount
in reaching its conclusion about whether to perform the quantitative goodwill impairment test.
35-69 An entity shall evaluate, on the basis of the weight of evidence, the significance of all identified events
and circumstances in the context of determining whether it is more likely than not that the fair value of the
entity (or the reporting unit) is less than its carrying amount. None of the individual examples of events and
circumstances included in paragraph 350-20-35-3C(a) through (g) are intended to represent standalone events
or circumstances that necessarily require an entity to perform the quantitative goodwill impairment test. Also,
the existence of positive and mitigating events and circumstances is not intended to represent a rebuttable
presumption that an entity should not perform the quantitative goodwill impairment test.
35-70 An entity has an unconditional option to bypass the qualitative assessment described in paragraphs
350-20-35-67 through 35-69 and proceed directly to a quantitative calculation by comparing the entity’s (or the
reporting unit’s) fair value with its carrying amount (see paragraphs 350-20-35-72 through 35-78). An entity may
resume performing the qualitative assessment upon the occurrence of any subsequent triggering events.
35-71 If, after assessing the totality of events or circumstances such as those described in paragraph 350-20-35-3C(a) through (g), an entity determines that it is not more likely than not that the fair value of the entity (or
the reporting unit) is less than its carrying amount, further testing is unnecessary.
35-72 If, after assessing the totality of events or circumstances such as those described in paragraph 350-20-35-3C(a) through (g), an entity determines that it is more likely than not that the fair value of the entity (or the
reporting unit) is less than its carrying amount or if the entity elected to bypass the qualitative assessment in
paragraphs 350-20-35-67 through 35-69, the entity shall determine the fair value of the entity (or the reporting
unit) and compare the fair value of the entity (or the reporting unit) with its carrying amount, including goodwill.
A goodwill impairment loss shall be recognized if the carrying amount of the entity (or the reporting unit)
exceeds its fair value.
35-73 A goodwill impairment
loss, if any, shall be measured as the amount by
which the carrying amount of an entity (or a
reporting unit) including goodwill exceeds its
fair value, limited to the total amount of
goodwill of the entity (or allocated to the
reporting unit). Additionally, an entity shall
consider the income tax effect from any tax
deductible goodwill on the carrying amount of the
entity (or the reporting unit), if applicable, in
accordance with paragraph 350-20-35-8B when
measuring the goodwill impairment loss. See
Example 2A in paragraph 350-20-55-23A for an
illustration.
35-74 The guidance in paragraphs 350-20-35-22 through 35-27 shall be considered in determining the fair
value of the entity (or the reporting unit).
35-75 The guidance in paragraphs 350-20-35-39 through 35-44 shall be considered in assigning acquired
assets (including goodwill) and assumed liabilities to the reporting unit when determining the carrying amount
of a reporting unit.
35-76 For an entity subject to the requirements of Topic 740 on income taxes, when determining the carrying
amount of an entity (or a reporting unit), deferred income taxes shall be included in the carrying amount of
an entity (or the reporting unit), regardless of whether the fair value of the entity (or the reporting unit) will be
determined assuming it would be bought or sold in a taxable or nontaxable transaction.
35-77 The goodwill impairment loss, if any, shall be allocated to individual amortizable units of goodwill of
the entity (or the reporting unit) on a pro rata basis using their relative carrying amounts or using another
reasonable and rational basis.
35-78 After a goodwill impairment loss is recognized, the adjusted carrying amount of goodwill shall be its new
accounting basis, which shall be amortized over the remaining useful life of goodwill. Subsequent reversal of a
previously recognized goodwill impairment loss is prohibited.