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FASB ASU No. 2019-06: Extending the Private Company Accounting Alternatives on Goodwill and Certain Identifiable Intangible Assets to Non-for-Profit Entities

      Why was this ASU issued?

      When the Board issued ASU 2014-18 that provided relief to private companies in accounting for goodwill, the Board acknowledged that the relief could be appropriate for not-for-profit entities as well as public companies. Therefore, the FASB added a project to its agenda to explore the possibility of extending the relief to not-for-profit entities. The Board has concluded that the cost of using an impairment-only model for not-for-profit entities does not exceed the benefit and issued this standard in response.

      Who is affected by this ASU?

      Any entity that meets the definition of a not-for-profit entity defined as follows:

      An entity that possesses the following characteristics, in varying degrees, that distinguish it from a business entity:

       Contributions of significant amounts of resources from resource providers who do not expect commensurate or proportionate pecuniary return

       Operating purposes other than to provide goods or services at a profit

       Absence of ownership interest like those of a business

      What are the main provisions of this standard?

      The amendments in this update extend the private company alternatives from Topic 350 (ASU 2014-02) and Topic 805 (ASU 2014-18) to not-for-profit entities.

      A not-for-profit entity that elects the alternative in Topic 350 will amortize goodwill on a straight-line basis over 10 years, or less than 10 years if the entity can establish that a shorter life is more appropriate.

      The entity is also required to make an accounting policy election to test for goodwill impairment at either the entity level or the reporting unit level when a triggering event occurs that indicates the fair value of the entity (or a reporting unit) may be below its carrying amount.

For acquisition transactions occurring after adoption of the alternative in Topic 805, a not-for-profit entity should subsume into goodwill and amortize customer-related intangible assets that are not capable of being sold or licensed independently, including all noncompetition agreements acquired.

      What is the effective date of this ASU?

      This standard is effective upon issuance, May 2019.

FASB ASU No 2019-12, Income Taxes Topic 740: Simplifying the Accounting for Income Taxes

      Why was this ASU issued?

      The FASB issued this standard as part of the Simplification Initiative designed to reduce the overall complexity of United States GAAP.

      Who is affected by this ASU?

      Any entity that is required to account for income tax expense within the scope of ASC 740.

      What are the main provisions of this ASU?

      The following exceptions were eliminated from Topic 740

       The exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or gain from other items such as discontinued operations or other comprehensive income. Apply on a prospective basis.

       The exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment. Apply on a modified retrospective basis through a cumulative effect adjustment to retained earnings as of the beginning of the fiscal year of adoption.

       The exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary. Apply on a modified retrospective basis through a cumulative effect adjustment to retained earnings as of the beginning of the fiscal year of adoption.

       The exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. Apply on a prospective basis.

      The following provisions were added:

       An entity is required to recognize a franchise or similar tax that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax. Apply on either a retrospective basis for all periods presented or a modified retrospective basis as of the beginning of the fiscal year of adoption.

       An entity is required to evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction. Apply on a prospective basis.

       Specifies that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements. However, an entity may elect to do so for a legal entity that is both not subject to tax and disregarded by the taxing authority. This election is on an entity-by-entity basis. Apply on a retrospective basis for all periods presented.

       An entity is required to reflect the effect of an enacted change in tax laws or rates in the annual effected tax rate computation in the interim period that includes the enactment date. Apply on a prospective basis.

       Minor codification changes in:Employee stock ownership plansInvestments in qualified affordable housing projects under the equity method

      What is the effective date of this ASU?

      For public business entities:

       For fiscal years beginning after December 15, 2020

       For interim periods within fiscal years beginning after December 15, 2020

      For all other entities:

       For fiscal years beginning after December 15, 2021

       For interim periods within fiscal years beginning after December 15, 2022

      Early adoption is permitted, including within an interim period. All amendments must be adopted within the same period.

      Summary

      The volume of standards issued by the FASB not involving Revenue Recognition, Leases, and Financial Instruments has been on the steady decline. The Board’s focus on the simplification initiative has led to the issuance of several standards that ease financial reporting burdens. Not-for-profit entities should pay special attention to standards that address the specific financial reporting issues related to that segment.

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