FASB Approves Simpler Option for Reporting Some Intangible Assets of Nonprofit Hospitals
As mergers and acquisitions (M&A) surge in the healthcare sector, not-for-profit hospitals and healthcare facilities will get an easier, less expensive method to account for the acquired intangible assets known as goodwill. On April 10, FASB voted to finalize a proposal that will enable not-for-profit healthcare entities to write off goodwill over a 10-year period, thereby minimizing the cost and complexity involved with testing for impairment annually, according to FASB’s discussions. Not-for-profit goodwill arises less frequently than for-profit goodwill and stems from two general types of transactions, according to a FASB summary. The first type occurs when a not-for-profit acquires a for-profit entity; the second occurs when a not-for-profit acquires “an entity in a net deficit position and the combined entity is predominantly supported by fee-for-service revenues.” A nonprofit electing the options available to them for the first time will be allowed to do so without justifying that the accounting change is preferable to its existing method of accounting for goodwill or restating its financial statements, FASB said.
FASB Votes to Finalize Proposal to Ease Transition for Credit Loss Rules
A proposal that could provide some lenders with an easier path to transition to new rules for reporting losses on loans will be finalized, FASB has unanimously decided. The changes will allow companies to elect the fair value option for eligible financial assets measured at amortized cost when they adopt the new credit loss accounting standard, ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The election, which is optional, would be “irrevocable,” meaning that once it has been made it cannot be called back. The change will address concerns raised by accountants that, without transition relief, they would have to maintain dual measurement methodologies. As a result, investors could receive more comparable financial statements across businesses.
Investors Better Served by Consolidating Sustainability Rules
Reporting about sustainability issues, including climate change, needs to be consolidated because the plethora of guidance available could be confusing to investors, IASB Chairman Hans Hoogervorst said on April 2 at the Climate-Related Financial Reporting Conference at Cambridge University in the United Kingdom. U.S. automotive company Tesla, for example, is ranked the highest on the sustainability index of MSCI, Inc., Hoogervorst said, while the Financial Times Stock Exchange (FTSE) ranks it as the worst carmaker globally on environmental, social, and governance (ESG) issues. “Yet another agency puts it somewhere in the middle,” he said. Investors typically use information about companies’ ESG issues to help inform their investment decisions. If reporting helps investors understand how companies are affected by sustainability issues, that offers a promising step forward, but with “so many standards, the potential for disclosure overload is enormous,” he said. “People may be forgiven for not making heads or tails of it.” Hoogervorst said that the IASB, which sets standards for about 144 jurisdictions worldwide, has no plans to write sustainability standards; the board has limited its role to the front end of annual reports.