A new standard establishing how private companies account for goodwill is not expected to cause immediate challenges for valuation specialists, but the impact could be more significant if the new rules are adopted for public companies down the road.
The standard is the work of the Private Company Council, an advisory group to the Financial Accounting Standards Board formed last year to address possible necessary changes to U.S. GAAP for non-issuers. On Nov. 25, the FASB endorsed a PCC proposal to provide alternative accounting for goodwill by private companies. Goodwill typically arises from business combinations. In financial reporting, goodwill is the residual amount remaining after the fair values of all identified assets acquired less liabilities assumed have been subtracted from the acquisition price.