Goodwill Triggering Event Evaluation for Private Companies, Nonprofits Proposed

FASB issued a proposal to allow private companies and nonprofits to evaluate whether an event caused goodwill to become impaired only as of the annual reporting date, rather than at interim periods. The change would provide a simpler and less costly option for resource-strapped companies that only report GAAP-compliant financial statements on an annual basis, the board said. Under the proposal, companies and organizations would not be required to monitor for goodwill impairment triggering events during interim periods, but would instead evaluate the facts and circumstances that exit as of year-end to determine whether it’s more likely than not that goodwill is impaired. Goodwill is determined by deducting the fair market value of tangible assets, identifiable intangible assets and liabilities obtained in a purchase  from the overall cost of a business in a merger or acquisition. Goodwill becomes impaired if its fair value declines below its carrying value. The board said it is seeking comments by January 20, 2021, on the guidance, published as proposed Accounting Standards Update(ASU) 2020-1100, Intangibles—Goodwill and Other (Topic 350) Accounting Alternative for Evaluating Triggering Events. FASB member Harold Schroeder, who represents an investor’s view during board discussions, dissented on the proposal.

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Updates for 2021 Financial Reporting and SEC Taxonomies Available

FASB said the 2021 Taxonomies—the data companies use to file electronic financial statements—have been updated with accounting standards and other recommendations and are now available. Specifically, the 2021 GAAP Financial Reporting Taxonomy (GFRT), the 2021 SEC Reporting Taxonomy (SRT), and the 2021 XBRL US DQC Rules Taxonomy (DQCRT), are now available to companies, the board’s taxonomy team announced. The GFRT and the SRT are expected to be accepted as final by the SEC in early 2021, the announcement states. The GFRT contains updates for accounting standards and other recommended improvements, such as new elements for the following ASUs and SEC rules:

  • Debt (Topic 470)—Amendments to SEC Paragraphs Pursuant to SEC Release 33-10762 (ASU 2020-09)
  • Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)—Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06)
  • Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments (ASU 2019-04)
  • SEC Release 33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants.

It also includes new elements and deprecations from remodeling of topical areas for asset acquisitions, accounting changes, and reorganizations.


Financial Instruments with Characteristics of Equity Study Moved to Rulemaking Agenda

The IASB on December 16 voted to move its project that tackles matters related to financial instruments with characteristics of equity from its research agenda to its technical rulemaking agenda. The objective of the project “is to improve information in financial statements about financial instruments that companies have issued,” IASB Chair Hans Hoogervorst said during a December 21 podcast. “These are usually complicated financial instruments where it’s not always clear whether it is equity or whether it’s a liability.” The board plans on developing an exposure document for public comment. Accountants have said it is a challenge to apply (IAS) 32, Financial Instruments—Presentation, when distinguishing financial liabilities from equity instruments because the underlying principles in the standard are not clear. Companies have been applying IAS 32 to most financial instruments without any significant problems, according to a staff handout that was developed for the meeting. Furthermore, the IASB is not aware of any evidence to suggest that there were fundamental problems with the standard during the global financial crisis of 2007–2008. However, due to market forces, financial innovation, and changes in bank capital regulations, there has been a growing set of financial instruments with characteristics of equity that have presented challenges when entities apply IAS 32.