Under current generally accepted accounting principles (GAAP), goodwill must be tested for impairment when a triggering event occurs. Companies and organizations are required to monitor and evaluate goodwill impairment triggering events, as they occur throughout the year.
This presents challenges for entities with goodwill on their balance sheets, if they were shut down or incurred significant revenue losses in the second quarter of 2020 due to COVID-19, but returned to normal operating and revenue levels by the end of 2020.
In response to these concerns, the Financial Accounting Standards Board (FASB) issued a Proposed Accounting Standards Update (ASU), in December 2020. The goal of the ASU is to provide an accounting alternative, that would reduce the complexity for private companies and not-for-profit organizations, when performing the goodwill impairment triggering event assessment.
On February 10, 2021, FASB voted to approve the accounting alternative allowing private companies and not-for-profit organizations to perform the goodwill impairment triggering event assessment at the reporting date, including interim reports. As a result, the evaluation of whether a triggering event has occurred can be performed at December 31, 2020 (for calendar year-ends), when operations and future projected financial activity may have improved since earlier in 2020.
Please contact us for more information or to have a conversation on how this may impact your company or organization.