The Financial Accounting Standards Board (FASB) issued ASU No. 2014-02 in January 2014 which now allows private companies to amortize goodwill for book purposes (Generally Accepted Accounting Principles – GAAP). Some might recall that long ago, GAAP specified goodwill was amortized over 40 years and that FASB changed GAAP to where goodwill could no longer be amortized at all. Under the no-amortizing policy, goodwill was to be examined at least annually for impairment and written down if found to be impaired.
Effective for annual periods beginning after December 15, 2014 (can early adopt if financials have not been issued), if elected, private companies can now elect to amortize (straight line basis) goodwill over 10 years (will continue to be 15 years for tax purposes) or less if the entity can demonstrate that another useful life is appropriate. If elected, the new accounting policy still requires testing for impairment at either the entity level of reporting unit level when a triggering event occurs.
This accounting alternative is in response to the needs of private companies and their stakeholders to save on the cost of testing for impairment on a yearly basis. Goodwill is also often disregarded when trying to obtain a loan, sell a company or calculate value so this allows for the removal from the books over a period of time and prevents the likelihood of impairment happening.