Goodwill Amortization Available to Some Financial Institutions

In January 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-02, Intangibles - Goodwill and Other (Topic 350). The amendments in this ASU allow an accounting alternative for the subsequent measurement of goodwill. An entity within the scope of the amendments that elects the accounting alternative in this ASU should amortize goodwill on a straight-line basis over 10 years, or less than 10 years if the entity demonstrates that another useful life is more appropriate.  

Criteria to Meet

The accounting alternative available under this ASU applies only to those entities that do not meet the definition of a public business entity under ASU 2013-12, Definition of a Public Business Entity. ASU 2013-12 defines a public business entity as a business entity meeting any of the following criteria:

• It is required by the U.S. Securities and Exchange Commission (SEC) to file or furnish financial statements, or does file or furnish financial statements (including voluntary filers), with the SEC (including other entities whose financial statements or financial information are required to be or are included in a filing).
• It is required by the Securities Exchange Act of 1934 (the Act), as amended, or rules or regulations promulgated under the Act, to file or furnish financial statements with a regulatory agency other than the SEC.
• It is required to file or furnish financial statements with a foreign or domestic regulatory agency in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer.
• It has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market.
• It has one or more securities that are not subject to contractual restrictions or transfer, and it is required by law, contract, or regulation to prepare U.S. GAAP financial statements (including footnotes) and make them publicly available on a periodic basis (for example, interim or annual periods). An entity must meet both of these conditions to meet this criterion.

Based upon the definition of a public business entity, all mutual financial institutions, privately held stock financial institutions under $500 million in total assets, privately held stock institutions with total assets in excess of $500 million that have a restriction on all capital stock, preferred and common stock, like a buy/sell agreement, would not meet the criteria to be a public business entity. As a result, these institutions would be considered private business entities and would have the option of applying ASU 2014-02, which allows the amortization of goodwill over a period not to exceed 10 years.

Federal Comments

The federal financial institution regulatory agencies have recently commented that they will allow financial institutions to adopt the accounting alternative available under ASU 2014-02 if they meet the exception to the public business entity definition. Guidance for implementation will be issued in the update to the fourth quarter 2014 Call Report Instructions.

Early Application Allowed

The accounting alternative, if elected, should be applied prospectively to goodwill existing as of the beginning of the period of adoption and new goodwill recognized in annual periods beginning after December 15, 2014, and interim periods within annual periods beginning after December 15, 2015. Early application is permitted, including application to any period for which the entity's annual or interim financial statements have not yet been made available for issuance.

For further information, please contact your local Eide Bailly professional.