Goodwill Impairment Testing Update - Private Company Impact of Endorsement

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Nicholas Junttila of UHY LLP, discusses the goodwill impairment testing update - private company impact of endorsement.

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The Financial Accounting Standards Board (FASB) recently endorsed a GAAP exception for private companies and their treatment of goodwill, marking a milestone in the work to provide simpler, less costly rules for private companies while producing financial statements that reflect economic reality.

The exception will exempt (with the exception of a triggering event) private companies from having to perform impairment tests for goodwill subsequent to a business combination. The exception gives private companies the option to amortize goodwill over ten years or less than ten years if the company can demonstrate that another useful life is more appropriate. Under the exception, a private company will be able to make an accounting policy decision to perform its impairment testing at the entity level or the operating level.

Prior to this exception by the FASB, a private company would test goodwill for impairment only when a triggering event occurs that may reduce the fair value of an entity or reporting unit (if elected) below its carrying amount. The exception would also eliminate Step 2 of the impairment test.

It is expected that the final standard, once issued, will be applied prospectively for goodwill existing as of the beginning of the period of adoption, and for goodwill generated from business combinations occurring in the first annual period beginning after December 15, 2014, and interim and annual periods thereafter. Goodwill that exists at the beginning of the period of adoption can be amortized prospectively over ten years or less than ten years if another useful life is more appropriate. Early adoption is permitted.

It should be noted that larger private companies may face a difficult decision. If they have any desire to go public, they may decline to use the exception because it would be challenging to go back and reconfigure their historical accounting at a later date.

About UHY LLP

UHY LLP, a licensed CPA firm, provides audit and other attest services to public and private companies. UHY Advisors provides tax and consulting services to a variety of sectors. UHY Advisors FLVS provides forensic, valuation, intellectual property, electronic discovery and international arbitration services to law firms and their clients. Many of these services grew from client business needs and their requests for assistance in a variety of areas of expertise.

UHY LLP, operating in an alternative practice structure with UHY Advisors, forms one of the largest professional services firms in the US. While that scale might provide confidence for some clients, others tell us our greatest value is the way we bring these resources to bear to help address today’s evolving business challenges. It’s a philosophy we call “The Next Level of Service”. To learn more visit http://www.uhy-us.com.

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UHY Advisors, Inc. provides tax and business consulting services through wholly owned subsidiary entities that operate under the name of “UHY Advisors.” UHY Advisors, Inc. and its subsidiary entities are not licensed CPA firms. UHY LLP is a licensed independent CPA firm that performs attest services in an alternative practice structure with UHY Advisors, Inc. and its subsidiary entities. UHY LLP and UHY Advisors, Inc. are U.S. members of Urbach Hacker Young International Limited, a UK company, and form part of the international UHY network of legally independent accounting and consulting firms. “UHY” is the brand name for the UHY international network. Any services described herein are provided by UHY LLP and/or UHY Advisors (as the case may be) and not by UHY or any other member firm of UHY. Neither UHY nor any member of UHY has any liability for services provided by other members.

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Jessica Bollenberg
UHY LLP
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