The U.S. accounting standard-setter plans to tackle issues around accounting for goodwill and disclosure of expenses in 2021, after a year marked by a leadership transition and the economic havoc caused by the coronavirus pandemic.
“Our agenda is filled with important items, but those are two that have drawn a lot of interest from people,” says Richard Jones, who took over as chairman of the Financial Accounting Standards Board in July. The FASB makes accounting rules for companies and nonprofit organizations in the U.S.
As The Wall Street Journal reports, in recent months, the FASB has advised on how to account for the impact of the pandemic, delayed implementation of certain rules by a year and temporarily slowed its pace of standard-setting. It is now turning to other, longstanding issues that have divided companies and investors for years.
In 2021, the seven-member board wants to improve the way companies recognize the value of goodwill—a hotly debated topic in the world of accounting—and make changes to how businesses reveal certain expenses to investors.
Companies record goodwill on their balance sheets when they buy a business for more than the value of its hard assets, such as cash or factories. The acquiring business must then measure the fair value of its reporting units annually and, if that figure is less than the amount recorded on the books, reduce the value of the goodwill.
Many businesses, however, deem this method, which was introduced in 2001, as costly and subjective. Some investors have criticized the process because goodwill impairments often occur years after an acquisition, lagging behind market moves.
The FASB is now considering changing the process to help reduce companies’ costs, even though it doesn’t have a formal proposal yet. Read the full story.