A full-scale review is under way of the accounting treatment of goodwill, an intangible asset arising from corporate M&A. While the current amortization rules will be maintained, proposals including eliminating amortization are also under consideration, with a conclusion targeted within the next 1 to 2 years.
Momentum is building to review the accounting treatment of goodwill arising from corporate M&A. While the current rules requiring periodic amortization will remain in place, options under consideration include allowing losses to be recognized without amortization and beginning amortization after the goodwill starts contributing to earnings. The government’s recommendations provided the impetus for the discussions.
The Financial Accounting Standards Foundation (FASF) will propose improvements this summer. A conclusion is expected within the next 1 to 2 years, with multiple issues under consideration, including the development of standards to avoid concentrating the amortization burden and the appropriate approach to disclosure. There are also calls to retain the current model on the grounds that there is no convincing basis for changing it.
Discussions may also advance on disclosing operating profit before amortization to improve comparability, as debate continues over whether to retain the current amortization rules. Market participants have indicated support for introducing non-amortization, partly to ease the burden on startups.