Not-for-Profits Now Benefit from GAAP Alternatives

The Financial Accounting Standards Board (FASB) recently announced that it will now extend two of its private company accounting alternatives to include not-for-profit organizations through Accounting Standard Update (ASU) 2019-06.

The Private Company Council (PCC), together with the FASB, did not include not-for-profit entities within the scope of the ASU issued in 2014 to simplify the accounting for 1) goodwill and 2) accounting for intangible assets in a business combination.

The recent standard issued extends the simplification of accounting procedures and related reduction of costs to the nonprofit sector by allowing not-for-profits to elect the following accounting alternatives instead of testing goodwill for impairment annually.

• Amortize goodwill over 10 years or less, on a straight-line basis
• Test for impairment upon a triggering event
• Have the option to elect to test for impairment at the entity level

In addition, an organization also has the option to simplify the accounting for intangibles by including certain customer-related intangible assets and all non-compete agreements into goodwill, which then must be amortized.

By incorporating these accounting alternatives, not-for-profits will be able to reduce the number of items recognized as separate intangible assets in acquisitions and be more cost effective in accounting for goodwill.

This new accounting alternative applies across all not-for-profits and does not differentiate between public non-for-profit entities and private not-for-profit entities. The board concluded that financial statement users of both entity types require the same information needs.

The standard was issued on Thursday, May 30 and effective immediately.

If your organization would like additional information on this new accounting standard, please contact me at sgumley@bpw.com or (805) 963-7811.