What to know about accounting guidance under ASC 350-20 and 350-30 has been saved
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What to know about accounting guidance under ASC 350-20 and 350-30
On the Radar: Accounting for goodwill and intangible assets
In efforts to reduce the cost and complexity of goodwill impairment testing, the accounting models for goodwill have changed significantly from the model that the Financial Accounting Standards Board (FASB) first introduced in 2001. This Roadmap provides insights into—and interpretations of—ASC 350-20 and ASC 350-30 on the accounting guidance for goodwill and intangible assets.
Subsequent accounting for goodwill
ASC 350-20 addresses the accounting for goodwill after its initial recognition. While entities have been required to test goodwill for impairment for many years, the current goodwill accounting model has evolved significantly from the model that the FASB originally introduced in 2001. The FASB has issued numerous Accounting Standards Updates (ASUs) on this topic, which were generally intended to simplify or reduce the cost and complexity of performing goodwill impairment testing. As a result of those updates, ASC 350-20 now provides two accounting models used in the subsequent accounting for goodwill: the “general goodwill” model and the “goodwill accounting alternatives.” The table below outlines the significant differences between the two accounting models.
On the Radar: Accounting for goodwill and intangible assets
Accounting for Goodwill Under ASC 350-20
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General Goodwill Model
- Scope – Required for public business entities (PBEs) and may be applied by private companies and not-for-profit entities (NFPs)
- Amortization – Goodwill is not amortized
- Impairment testing – Goodwill is tested for impairment annually, or between annual tests if an impairment indicator exists (i.e., a triggering event)
- Unit of account – Goodwill is tested for impairment at the reporting unit level
- Monitoring for triggering events – An entity must monitor for goodwill triggering events throughout the reporting period
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Goodwill Accounting Alternatives
- Scope – Accounting policy elections available to private companies and NFPs
- Amortization – Goodwill is amortized over a useful life of 10 years or less
- Impairment testing – Goodwill is tested for impairment only when an impairment indicator exists
- Unit of account – An entity elects to test goodwill at either the entity level or the reporting unit level
- Monitoring for triggering events – An entity may elect to only assess goodwill for triggering events at the end of each interim or annual reporting period
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Subsequent accounting for intangible assets
Once an intangible asset is recognized, an entity must determine the asset’s estimated useful life. An intangible asset is either indefinite-lived or finite-lived on the basis of the intangible asset’s expected useful life to the entity. The useful life of an intangible asset is considered indefinite if it is not limited by any legal, regulatory, contractual, competitive, economic, or other factors. The term “indefinite” does not mean infinite or indeterminate; it only means that the asset’s life extends beyond the foreseeable horizon.
The subsequent accounting for an intangible asset varies considerably on the basis of whether the useful life of the asset to the entity is considered indefinite or finite. The table below highlights some key differences between finite-lived and indefinite-lived intangible assets.
Accounting for intangible assets under ASC 350-30
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Finite-Lived Intangible Assets
- Characteristics – Expected useful life to the entity is limited
- Amortization period – Over the expected useful life to the entity
- Amortization method – On the basis of the pattern in which the economic benefits are consumed or otherwise used up. If that pattern cannot be reliably determined, a straight-line amortization method should be used
- Impairment testing – Tested for impairment in accordance with ASC 360 whenever events or circumstances indicate that the carrying amount of the asset (or asset group) may not be recoverable. An impairment loss is recognized if the carrying amount of the asset or asset group tested is not recoverable and its carrying amount exceeds its fair value (two-step test)
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Indefinite-Lived Intangible Assets
- Characteristics – No legal, regulatory, contractual, competitive, economic, or other factors limit the useful life to the entity
- Amortization period – Not applicable
- Amortization method – Not applicable
- Impairment testing – Tested for impairment in accordance with ASC 350 at least annually and more frequently if events or changes in circumstances indicate that the asset might be impaired. An entity may first perform the optional qualitative impairment assessment to determine whether it is more likely than not that the indefinite-lived intangible asset is impaired. If it is more likely than not that the asset is impaired, the entity would be required to perform a quantitative test by comparing the fair value of the asset with its carrying amount and recognizing an impairment loss for any excess. ASC 350-30-35-21 through 35-28 provide guidance on the unit of account to apply
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Continue your goodwill accounting learning
Deloitte's Roadmap Goodwill and intangible assets provides Deloitte's insights and interpretations of the guidance in ASC 350-20.
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Matt Himmelman
Audit | Technology, Media, and Telecommunications
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Jamie Davis
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