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Goodwill Accounting Overhaul Suddenly Scuttled by Rulemakers (1)

June 15, 2022, 4:11 PMUpdated: June 15, 2022, 5:43 PM

US accounting rulemakers on Wednesday ended a four-year effort to overhaul accounting for the intangible asset called goodwill.

The Financial Accounting Standards Board voted unanimously to discontinue work on the plan.

“This is something that will need to get addressed but I’m not convinced right now that it has to be the top priority,” said board member Marsha Hunt.

The vote was an unusual reversal of what once seemed like an inevitable change to accounting for the tricky intangible asset. After years of debate and trying three times to simplify how companies calculate goodwill impairments, FASB appeared to be moving steadily toward allowing companies to amortize, or write down in steady chunks over time until it shrinks down to zero, the goodwill they must record when they buy another business.

Ultimately, board members questioned whether the changes they had considered to date would improve financial reporting for either investors or accountants. Some also suggested the board should wait to see how the International Accounting Standards Board progresses with its own review of goodwill accounting.

“Are we trading one set of challenges with a different set of challenges?” FASB Vice Chair James Kroeker said. “I need to try and avoid what I would call standard-setting hubris of thinking my answer is better than all of the answers we’ve tried in the past.”

The board’s plan would have eliminated two-decade-old rules that require companies to keep the asset as a line on their balance sheets forever, only marking it down when there’s a sign it has permanently lost its value.

Companies and their accountants have complained for years that the test is too complicated and subjective. But a major investor group told FASB in December that investors and analysts don’t want a rule revamp; instead they want businesses to divulge details about deals so they can understand how well acquisitions pan out.

The Securities and Exchange Commission’s top accountant in February also cautioned FASB against making changes for change’s sake.

Investors have offered differing views on whether FASB should revamp the accounting, and the board “may find that there is significant diversity in views of investors such that there is not a clear case for change,” SEC Acting Chief Accountant Paul Munter said at the time.

Whittling down goodwill in tidy increments also would wipe out a sizable chunk of the assets the largest US companies hold on their balance sheets. Public companies have almost $4 trillion worth of goodwill on their balance sheets, FASB member Frederick Cannon said.

(Updates throughout with details from the FASB meeting and background on the goodwill project.)

To contact the reporters on this story: Nicola M. White in Washington at nwhite@bloombergtax.com; Amanda Iacone in Washington at aiacone@bloombergtax.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergindustry.com; David Jolly at djolly@bloombergindustry.com