Can For-Profit Subsidiaries of Not-for-Profit Entities elect to Amortize Goodwill under ASU 2014-02?

In January 2014, FASB issued ASU No 2014-02, Intangibles- Goodwill and Other, allowing private companies the option of amortizing goodwill over a 10-year useful life or less if the entity could demonstrate that another useful life is appropriate.  This ASU was developed by the Private Company Council as an alternative to the requirement to annually perform an impairment test for goodwill after a business combination. The impairment test, if this standard were adopted, would only be necessary when a triggering event occurred. 

For-profit subsidiaries of not-for-profit entities wondered if they were able to adopt this ASU.

In January 2015, the AICPA Not-for-Profit Entities Expert Panel issued nonauthoritative guidance to assist for-profit subsidiaries of not-for-profit entities in determining whether they are permitted to elect to amortize goodwill as permitted by FASB ASU No. 2014-02, Intangibles – Goodwill and Other.

The guidance contained in Q&A Section 6140.26 of the AICPA Technical Questions and Answers is intended for any not-for-profit entity that has a for-profit subsidiary and is consolidated under GAAP.  In instances where the for-profit subsidiary has goodwill, the subsidiary can adopt the accounting alternative in ASU 2014-02 in its stand-alone financial statements. 

However, in the consolidated financial statements, the for-profit subsidiary is not allowed to use the amortization accounting alternative because the reporting entity is the consolidated not-for-profit entity.  ASU 2014-02 strictly applies to private companies.  A private company is defined by the FASB as “an entity other than a public business entity, a not-for-profit entity or an employee benefit plan within the scope of Topics 960 through 965 on plan accounting.”

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