On March 30, the Financial Accounting Standards Board (FASB) issued an update to Topic 350-20 (Intangibles – Goodwill and Other) with regard to the Accounting Alternative for Triggering Events.
The new standard applies to private companies and not-for-profit (NFP) entities that report goodwill in accordance with Subtopic 350-20 and is not limited to those entities that have also elected the accounting alternative for amortizing goodwill. The standard will not require incremental disclosures beyond the existing requirements in Subtopic 350-20 or Topic 235 (Notes to Financial Statements). It takes effect for fiscal years beginning after December 15, 2019.
Under previous Subtopic 350-20 guidance, entities were required to monitor and evaluate goodwill impairment throughout the fiscal year, as impacted by qualifying triggering events. After such an event, a company was required to assess whether it was more likely than not that the fair value of the reporting entity was less than its carrying value; if so, the company would need to test goodwill for impairment.
Testing and subsequent analysis were required to be performed on the date of the triggering event, without the benefit of hindsight or other known changes to facts or circumstances that may have occurred after the event date.
The FASB recognized that there may be significant cost and complexity involved in performing an interim triggering event evaluation when compared to conducting one on an annual basis or at the end of the reporting period. Additionally, interim impairment analyses may not always provide useful information to users of certain private company financial statements since facts and circumstances that led to the impairment triggering event may have changed or are not present at the end of the annual reporting period. In such instances, an updated triggering event analysis that reflects current circumstances may be more relevant to financial statement users than the interim impairment analysis.
This update by the FASB provides private companies and NFP entities with the option to perform the identification and evaluation of a triggering event for goodwill impairment as of their reporting date rather than the date of the triggering event. Entities that select this alternative will no longer be required to monitor goodwill impairment triggering events in interim periods, but instead evaluate facts and circumstances as of their financial statement reporting date to determine whether it is more likely than not that goodwill is impaired.
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