The Issue Of Accounting For Goodwill

829 WordsNov 22, 20154 Pages
The issue of accounting for goodwill has commonly been an area of debate between private and public companies. As the PCC conducted research on the matter they found that many private company stakeholders indicated that the benefits of accounting for goodwill under the traditional GAAP method was worth the associated cost of doing so. The private company financial statement users found that little decision-useful information resulted from the expensive accounting method of goodwill. Many who analyze private companies disregard goodwill when determining the performance and financial condition of private companies. In a survey of financial statement preparers it was found that they did not believe that previous rules for private companies regarding goodwill recognition were inadequate and did not save much cost to these smaller private companies. (Lange, 1) In the amendment created by the influence of the PCC, privately held companies have an optional election for an alternative measure of goodwill. The formal explanation of the amendment is as follows: “An entity within the scope of the amendments that elects the accounting alternative in this Update should amortize goodwill on a straight-line basis over ten years, or less than ten years if the entity demonstrates that another useful life is more appropriate (Lange, 2).” US GAAP which pertains to public companies requires that goodwill be tested annually for impairment or in some cases more frequently. In addition,

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