The Financial Accounting Standards Board (FASB) recently issued Accounting Standards Update (ASU) 2021-03, Accounting Alternative for Evaluating Trigger Events.
This updated guidance eliminates the need for private companies and not-for-profit entities to continually assess goodwill for impairment throughout the reporting period, and rather perform only one analysis at the end of a reporting period. The reporting period can be either an interim or an annual reporting period.
Current guidance under Subtopic 350-20, Intangibles--Goodwill and Other--Goodwill, stipulates that an entity is required to monitor and evaluate whether goodwill is impaired due to a triggering event on an ongoing basis whenever a triggering event occurs. Naturally, given the COVID-19 pandemic, entities were finding that the uncertainty surrounding the whole situation was basically a non-stop triggering event. The ensuing analysis for triggering events was found to be continuous, costly and complex. This concern was communicated to the FASB, and as a result, the FASB issued ASU 2021-03. The accounting alternative should alleviate a lot of the cost and burden of evaluating triggering events, by aligning this exercise with closing procedures. The alternative provides the added benefit of hindsight when assessing for goodwill impairment, which is a tremendous advantage in a rapidly changing environment similar to that during the COVID-19 pandemic. Private companies or not-for-profit organizations that elect this alternative should include impairment assessments as part of period-end closing procedures, in order to capture any triggering events that could have occurred.
The amendments in this Update apply only to private companies and not-for-profit entities, and are effective on a prospective basis for fiscal years beginning after December 15, 2019. Additionally, the amendments in this update do not require additional disclosure beyond the existing requirements.
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