United States and International Accounting Rules Manufacturers Differ on Goodwill Amortization

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Executives at two major accounting standard setters have said they hope to streamline goodwill accounting rules, although their boards largely disagree on the key question of whether companies should be authorized to amortize the intangible asset.

Goodwill is created when one company acquires another for more than the value of its durable goods. It was subject to goodwill amortization or impairment over several years.

The Financial Accounting Standards Board, which sets US accounting standards, abolished goodwill amortization in 2001 because companies wanted to make acquisitions without having to make large and periodic write-downs of their earnings. The International Accounting Standards Board, which sets standards in more than 140 countries, followed suit three years later. The FASB and IASB now require companies to test goodwill for potential impairment every year.

Organizations have attempted to establish standards with similar principles since they abandoned a joint effort in 2011 to make their standards identical.

Most FASB members want to reintroduce depreciation for public companies, President Russell Golden said at an event hosted by the International Financial Reporting Standards Foundation and the CFA Institute on Wednesday.

“If you like the amortization of goodwill, this is the good news,” Mr. Golden said. “The bad news is that we don’t have a clear agreement on how to proceed at the moment.”

The reintroduction of goodwill amortization would affect companies in different ways, depending on whether standard setters institute amortization over a defined period or use a weighted average asset life model with no defined period, among other variables.

Members of the IASB are widely opposed to reintroducing goodwill amortization, saying it might be more difficult to verify if an acquisition is working, but they are still considering changing its goodwill rules. The board decided not to reintroduce depreciation in 2017 and instead focus on improving the depreciation model, but this proved difficult.

The FASB gave private companies the option of amortizing goodwill over a 10-year period in 2014, and offered this option to nonprofits in May this year.

IASB chairman Hans Hoogervorst said he was in the minority on its board to support an initiative to amortize goodwill for international companies. He called the amortization of goodwill “ugly like a sin”, but agreed that it should be a necessary expense and perhaps the best solution to a difficult problem, as goodwill is “unlikely to lasts forever “.

“We see time and time again that goodwill is only written off when it is too late,” Hoogervorst said during a panel at the event.

The FASB, which is hosting a public roundtable on goodwill on November 15, recently looked at the profitability of the current goodwill rules for public companies, but the board is considering making more significant changes that would affect all companies.

Companies recently said in letters to the FASB that existing goodwill rules impose unnecessary costs on them and are too subjective.

Write to Mark Maurer at [email protected]

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