In January 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2014-02, Intangibles – Goodwill and Other (Topic 350): Accounting for Goodwill. ASU 2014-02 provides private companies with an alternative for accounting for goodwill subsequent to its initial recognition. The update is based on recommendations from the Private Company Council (PCC) and is intended to simplify the subsequent accounting for goodwill while still providing useful information to financial statement users. Private companies electing the accounting alternative will amortize goodwill on a straight-line basis over 10 years or a period of less than 10 years if they can demonstrate that another useful life is more appropriate. Upon electing the accounting alternative, private companies will be required to make an accounting policy election to test goodwill for impairment at either the entity level or reporting unit level. Goodwill no longer will be annually tested for impairment; instead, it will be tested for impairment only when a triggering event occurs indicating the fair value of the entity (or reporting unit) may be below its carrying amount. Upon the occurrence of a triggering event, a simpler, one-step impairment test will be performed.
The accounting alternative, if elected, should be prospectively applied to all goodwill existing as of the beginning of the period of adoption as well as to all new goodwill generated from business combinations in the first annual period beginning after December 15, 2014, and interim periods within annual periods beginning after December 15, 2015. Early application is permitted, including for any annual or interim period for which financial statements have not yet been made available for issuance.