Mercer Capital's Financial Reporting Blog

Changing Course: A New Proposal for Private Company Goodwill Accounting

Less than a year after its formation, the Private Company Council (PCC) is making progress in its initial efforts to reduce the costs and complexities of financial reporting for private companies that use GAAP. Pending FASB approval is a GAAP modification proposed by the PCC that would allow private companies to amortize goodwill and implement a simplified model for goodwill impairment testing. Currently, private companies that use GAAP must follow the goodwill accounting rules codified as ASC 350, which prevent amortization of goodwill and require at least annual testing for impairment at the reporting unit level.

Under the PCC proposal, the following alternatives would be available to private companies that use GAAP for financial reporting purposes:

  • Amortization of goodwill on straight-line basis, for a period not to exceed ten (10) years
  • No annual testing for impairment; testing only at the occurrence of certain triggering events
  • Goodwill testing to occur at the entity level, rather than the reporting unit level
  • Goodwill impairment charges to be measured by comparing the carrying value of the entity (rather than goodwill) to the fair value of the entity (rather than goodwill)

The final point carries the implication that no longer would private companies choosing to account for goodwill under the PCC alternative be required to re-measure the value of goodwill and identifiable intangibles in order to quantify an impairment charge.

Stay tuned for updates. The FASB timeframe implies a final ruling on this PCC proposal (in addition to one other) by the end of November. PCC Chairman Billy Atkinson, eager to move forward, says his goal is “2013 implementation.”

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Mercer Capital’s Financial Reporting Blog

Mercer Capital monitors the latest financial reporting news relevant to CFOs and financial managers. The Financial Reporting Blog is updated weekly.