The Financial Accounting Standards Board (FASB) has released two important updates that could change accounting for some private companies, and may potentially result in cost savings in their financial reporting.
The first update introduces an alternative accounting for goodwill, whereby private companies are permitted to amortize goodwill over a period up to 10 years. Prior to this update, goodwill could not be amortized under Generally Accepted Accounting Principles (GAAP).
The second allows an alternative accounting for certain interest-rate swap agreements entered into by private companies. This modification introduces the option to utilize a simplified hedge accounting approach as a substitute for the current standards.
Both of these updates are in response to calls for a modified set of accounting standards for privately held companies; both are elective. These alternative options are intended to reduce the complexity and cost burden some private companies felt was excessive under the current standards, without departing from accounting principles generally accepted in the United States.
Public companies, non-profits and employee benefit plans are not permitted to adopt these two accounting alternatives.
If you have questions about how these updates might apply to you, or whether adopting these alternative accounting policies can really reduce complexity and cost burdens for your private company, please contact Mike Bedel, Director of Audit & Assurance Services.