Not-for-Profit Goodwill and Intangible Amortization
The Financial Accounting Standards Board (FASB) recently issued new accounting guidance which allows all not-for-profit (NFP) entities to elect a simplified goodwill and intangibles accounting alternative. Under the new guidance (ASU 2019-06), an NFP would:
- Amortize goodwill on a straight-line basis over 10 years, or less than 10 years, if the NFP demonstrates that a shorter useful life is more appropriate.
- Make an accounting policy election to test goodwill for impairment when a triggering event occurs that indicates that the fair value of the entity (or a reporting unit) may be below its carrying amount.
In addition, instead of separately recognizing most intangible assets at fair value on the acquisition date, an NFP can recognize fewer items by incorporating into goodwill customer-related intangible assets that cannot be sold or licensed independently from other acquired assets of the business and noncompetition agreements acquired.
Effective Date: The accounting alternative is effective May 30, 2019. If elected, the guidance should be applied prospectively for all existing goodwill and for all new goodwill generated in acquisitions by NFP entities. NFPs may wish to apply the new guidance as soon as possible, such as NFPs with June 30, 2019 year ends.
This is a general summary of the new accounting guidance. Please refer to FASB Accounting Standards Update No. 2019-06, Intangibles-Goodwill and Other (Topic 350), Business Combinations (Topic 805), and Not-for-Profit Entities (Topic 958)for additional information.
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