GAAP Alternatives Extended to Not-for-Profit Financial Reporting

GAP for Goodwill graphic

In an effort to make accounting less complicated and less costly for not-for-profit financial reporting, FASB recently announced a new standard that will extend two GAAP alternatives that were originally developed for private companies. 

The standard will make not-for-profits eligible for the private company alternatives on accounting for goodwill and accounting for identifiable intangible assets in a business combination.

An announcement in the AICPA Journal of Accountancy noted the changes that not-for-profits would experience when using the new standard for financial reporting:

Instead of testing goodwill for impairment annually at the reporting-unit level, a not-for-profit that elects the accounting alternative will:

  • 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.

A not-for-profit also has the option to subsume certain customer-related intangible assets and all noncompete agreements into goodwill, which it subsequently is required to amortize.

Just like private companies that elect the GAAP alternatives, not-for-profits have an open-ended effective date and unconditional one-time elective.  

Announcement of the new standard is good news for not-for-profits that have many reporting units and/or have experienced merger and acquisition activities in recent years. Reducing the cost and complexity of financial reporting aligns with an overall goal in this sector of reducing administrative costs — especially at a time when funding sources are changing or uncertain.

If your not-for-profit organization is looking for this and other ways to simplify financial reporting, talk to our experienced not-for-profit team at LvHJ. We advise many complex not-for-profits in tax, attest and accounting consulting. 

Journal of Accountancy

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