Small Business Advisory Committee Backs Simplified Approach to Goodwill
Representatives from small businesses, auditors, and investors told FASB on November 30 that they supported further changes to the accounting for acquired goodwill, an area of U.S. GAAP that has long challenged financial professionals. Goodwill is an intangible asset, and it generally includes the reputation of the acquired company or its competitive advantage in the market. The impairment test, however, has long been subject to criticism, and FASB has attempted over the years to make it easier to follow. Companies say it is a complex, time-consuming exercise that usually requires costly valuation experts to weigh in, while investors complain about the lag between the impairment occurring and the charge being recognized. FASB Chairman Russell Golden said the accounting board plans to keep goodwill on its research agenda but would not commit to what direction the board may take. “I personally can’t answer without knowing what intangibles investors want recorded in a business combination,” Golden said.
Simplified Transition to New Lease Standard Confirmed for Property Easements
FASB has agreed that utilities, oil-and-gas companies, and energy companies holding rights-of-way to accommodate gas pipelines or electric wires will have a somewhat eased transition process to the board’s new standard for lease contracts. Once the new lease standard is in place, however, companies must determine if new property rights—called land easements—that they acquire fit within the standard’s scope, the board said. The board’s decision largely confirmed the guidance in Proposed Accounting Standards Update 2017-290, Leases (Topic 842)—Land Easement Practical Expedient for Transition to Topic 842, but it also adjusted a provision in the earlier proposal saying that the break applied only to businesses that had not previously “assessed” their contracts to determine if they need to follow the current guidance Topic 840. Some businesses and accounting firms said the word “assessed” could disqualify them from using the simplified transition process. The board agreed, saying that the final update to U.S. GAAP would state that only contracts not previously “accounted for” as leases would qualify for the relief. FASB members said the change confirmed their intention for the proposed change.
Proposals for Expanded Audit Reports Released for Comment
On November 29, the AICPA’s Auditing Standards Board (ASB) released three related proposals to increase the amount of information accountants have to provide investors, creditors, and regulators in audit reports. Some of the proposed guidance is intended to converge the AICPA’s guidance with comparable audit literature from the International Auditing and Assurance Standards Board. The AICPA said comments should be submitted by May 15, 2018. If the proposed requirements become final, they will be effective for audits of financial statements for reporting periods that end June 15, 2019, or later.