Goodwill: How a recent proposal would change the rules

On December 20, the Financial Accounting Standards Board (FASB) proposed an accounting alternative that would enable private companies and not-for-profit entities to perform a triggering event evaluation for goodwill only at the annual reporting date, thereby skipping having to do so during interim periods. Here are the details.


Goodwill is an accounting term used for a specific acquired intangible asset that’s recorded on the balance sheet in a merger or acquisition. It’s determined by deducting the fair market value of tangible assets, identifiable intangible assets and liabilities obtained in the purchase, from the cost to buy a business. As events or circumstances change, goodwill can become impaired (or decline in value).

Under current U.S. Generally Accepted Accounting Principles (GAAP), private companies must monitor and evaluate interim goodwill triggering events as they occur throughout the year. This involves the preparation of interim balance sheet and cash flow projections that may lose relevance at the annual reporting date when financial statements are issued.

Those companies find it costly and complex to have to perform the goodwill triggering event evaluation on an interim basis, because they issue GAAP-compliant financial statements only annually. The COVID-19 pandemic — which could be considered a triggering event — further complicates this issue.

Evaluation of interim triggering events

The proposed alternative would eliminate the interim triggering event evaluation and, instead, require only a year-end triggering event evaluation. The alternative would be applicable only to entities within the scope of the proposal and only for goodwill. It wouldn’t be applicable to other intangibles, fixed assets or any other assets.

FASB Chairman Richard Jones said, “It’s a narrow exception for a narrow set of entities, and I think the benefits definitely justify the costs for a narrow segment.”

It’s important to note that FASB member Harold Schroeder, the lone dissenter to the proposal, wanted the alternative to include a sunset provision. That provision would limit the alternative to the time period of the economic impact of the COVID-19 crisis.

Work in progress

The FASB issued its narrow-scope proposal on interim evaluations of triggering events with a 30-day comment period. If approved, the changes would take effect prospectively for fiscal years beginning after December 15, 2019. Earlier adoption also would be permitted.