FASB Extends Certain Private-Company Accounting Alternatives to Not-for-Profit Entities
by Michael Scheper and Stefanie Tamulis, Deloitte & Touche LLP
On May 30, 2019, the FASB issued ASU 2019-06,1 which extends certain private-company
accounting alternatives to not-for-profit entities. Specifically, the ASU permits such entities to
elect alternative approaches to account for goodwill and certain identifiable intangible assets
acquired in a business combination.
In 2014, the FASB issued ASUs 2014-022 and 2014-18,3 which offered private companies
simplified alternatives for the subsequent accounting for goodwill and the accounting for
certain identifiable intangible assets acquired in a business combination. Those alternatives
were initially developed by the Private Company Council on the basis of feedback from
private companies and their stakeholders about the costs and complexity associated with
the goodwill impairment test and the accounting for certain identifiable intangible assets.
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. Accordingly, it added a project to its agenda to
determine whether to extend the alternatives to not-for-profit entities and ultimately issued
ASU 2019-06. The Board noted that the new guidance is intended to extend, but not amend,
the scope of the accounting alternatives in ASUs 2014-02 and 2014-18.
Goodwill Accounting Alternative
Under ASU 2019-06, a not-for-profit entity is permitted to amortize goodwill on a straight-line
basis over 10 years, or less than 10 years if it demonstrates that another useful life is more
appropriate. Upon adoption of the accounting alternative, the entity must make an accounting
policy election to test goodwill for impairment at either the entity level or the reporting-unit
level. Goodwill of the entity (or the reporting unit) is tested for impairment if an event occurs
or circumstances change indicating that the fair value of the entity (or the reporting unit) may
be below its carrying amount. Annual testing of goodwill for impairment is not required.
If elected, the alternative must be applied to all existing goodwill and new goodwill recognized
after the ASU’s effective date. In addition, the entity must comply with the alternative’s related
subsequent measurement and disclosure requirements.
Intangible Assets Accounting Alternative
Under the ASU, a not-for-profit entity is permitted to subsume into goodwill the following
intangible assets acquired in a business combination:
“Customer-related intangible assets unless they are capable of being sold or licensed
independently from other assets of a business.”
Effective Date and Transition
The amendments in the ASU 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. The entity should apply the intangible assets
accounting alternative, if elected, prospectively upon the occurrence of the first transaction
within the scope of the alternative.
In addition, while an entity that elects the intangible assets accounting alternative must adopt
the goodwill alternative to amortize goodwill, it is not required to adopt the intangible assets
accounting alternative if it elects the goodwill accounting alternative.