On February 10, 2021, the Financial Accounting Standards Board (FASB) met and agreed to issue a final Accounting Standards Update (ASU) that will provide an additional goodwill impairment alternative for private companies and not-for-profit entities (both as defined in the Master Glossary of the FASB’s Accounting Standards Codification [ASC]) that will allow these entities to perform the goodwill triggering event impairment analysis required by ASC 350-20-35-30 or ASC 350-20-35-66 as of the reporting date any time it reports financial information (including interim reports), instead of the date at which the triggering event occurred. For purposes of what constitutes reporting interim financial information, the FASB indicated that the final ASU will reference ASC 270, “Interim Reporting.” The guidance in ASC 270 applies to all entities that issue interim financial information prepared in accordance with U.S. generally accepted accounting principles (GAAP) and indicates that interim financial information encompasses summarized financial information in addition to a complete set of financial statements and footnotes.

We believe the practical implications of the decisions reached by the FASB are as follows:

• If a private company or not-for-profit entity issues interim financial information prepared in accordance with U.S. GAAP, it would perform its goodwill triggering event impairment analysis (and any resulting impairment test) as of the interim reporting date. In other words, the entity would not be allowed to wait and perform its goodwill triggering event impairment analysis (and any resulting impairment test) as of its annual reporting date.
• If a private company or not-for-profit entity only issues annual financial information prepared in accordance with U.S. GAAP, it will perform the goodwill triggering event impairment analysis (and any resulting impairment test) as of its annual reporting date.

We believe the FASB’s decisions will significantly limit the benefits of the alternative in that many private companies and not-for-profit entities issue interim financial information prepared in accordance with U.S. GAAP for various reasons (e.g., debt covenant compliance, regulatory requirements), and the alternative will result in those entities still needing to perform their goodwill triggering event impairment analyses (and any resulting impairment tests) as of an interim reporting date.

Based on the proposed ASU, Intangibles—Goodwill and Other (Topic 350): Accounting Alternative for Evaluating Triggering Events, and the FASB’s related redeliberations on February 10, 2021, the final ASU  also is expected to include the following guidance:

• The alternative only will be applicable to goodwill accounted for in accordance with ASC 350-20, “Intangibles—Goodwill and Other – Goodwill,” which includes the excess reorganization value recognized as goodwill by entities that adopt fresh-start reporting under ASC 852, “Reorganizations,” but not goodwill related to applying the equity method of accounting under ASC 323, “Investments—Equity Method and Joint Ventures.”
• If a private company or not-for-profit entity elects the alternative, that election will have to be disclosed under ASC 235, “Notes to Financial Statements,” in addition to the information otherwise required to be disclosed by ASC 350-20.
• If the alternative is elected, it will be prospectively applied, and its effective date will be for financial statements with fiscal years beginning after December 15, 2019, with early adoption permitted in annual financial statements that have not been issued or made available for issuance at the point in time the final ASU is issued.
• There will be an unconditional one-time election that permits election of the alternative prospectively after its effective date without assessing preferability under ASC 250, “Accounting Changes and Error Corrections.”
• While the perceived need for this alternative was elevated as a consequence of the economic disruption attributable to the coronavirus pandemic, the alternative will be applicable to the annual period in which it is elected, as well as all future annual periods to which that election applies (i.e., no sunset provision will be provided for the alternative).

The alternative will only become part of U.S. GAAP after a final ASU is issued. We expect the earliest a final ASU will be issued by the FASB is March 2021.

Once available, a summary of the tentative decisions made by the FASB at its meeting on February 10, 2021 can be accessed here.