ASU Update 2019-06 relates to goodwill impairment for a not-for-profit entity. The two standards that are being updated are Topic 805, which relates to business combinations and Topic 350, which relates to goodwill impairment. Both of these Topics go hand in hand with one another. If an entity chooses to use Topic 805 then they must use Topic 350 as well.
Previously, a not-for-profit entity was required to test for goodwill impairment annually. Under the new provision, Topic 350 will now require not-for-profit entities to amortize goodwill on a straight-line basis instead of testing goodwill for impairment annually at the reporting level. A not-for-profit entity should amortize goodwill on a straight-line basis over 10 years, or less than 10 years if the not-for-profit entity demonstrates that a shorter useful life is more appropriate. This will allow not-for-profit entities to align themselves more with nonpublic companies.
If the entity is applying the acquisition method to record a business combination then Topic 805 must be used. The entity that elects to use Topic 805 will recognize fewer items as separate intangible assets in an acquisition. Previously, an acquirer would recognize most assets acquired and liabilities assumed in an acquisition by a not-for-profit entity at their acquisition date fair values. If the update is elected, it will reduce the cost and complexity that is associated with the subsequent accounting of goodwill.
The goal of these updates is to simplify the calculation of goodwill impairment and make it easier to amortize goodwill from acquisitions. If you have any further questions, you can reach out to me or any other audit professional at Stephano Slack.