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 2014-18, which offered entities other
than PBEs and not-for-profit entities simplified accounting alternatives for certain
identifiable intangible assets acquired in a business combination. 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.
When the Board issued ASU 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. 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.