To reduce the cost and complexity of frequent impairmentAn unanticipated decline in an asset's value that occurs when the asset's carrying amount is greater than its recoverable amount. testing, private companies and not-for-profit organizations may elect to follow simpler GAAP alternatives for recognizing goodwillAn intangible asset resulting from the acquisition of a business. It represents the asset's fair value in excess of the identifiable net assets acquired less liabilities. The value is derived from the acquired business's unidentifiable benefits (eg, reputation, customer loyalty, brand identity).. Eligible entities are permitted to use one or both alternatives.

• The first option allows eligible entities to amortize goodwill on a straight-line basis over its useful life, not to exceed 10 years. If the amortization option is elected, goodwill is still tested for impairment. However, because goodwill is amortized, its carrying value decreases each period, making it less likely that impairment will actually occur in this situation.
• The second option reduces the frequency with which eligible entities must test for impairment. Ordinarily, triggering eventsAny event that indicates the FV of an entity (or a reporting unit) may be below its carrying amount (eg, economic recession, increased competition). must be monitored and evaluated continually throughout the reporting period. However, by electing this alternative, eligible entities are allowed to test for triggering events and impairment only once, as of the end of each reporting period (eg, annually, quarterly).

Therefore, a private company is allowed to amortize goodwill but is not exempt from goodwill impairment testing. However, private companies are allowed to test for impairment less frequently than public companies.

Note: Election of either or both accounting alternatives is disclosed in the Summary of Significant Accounting Policies.

Things to remember:
There are two alternative approaches to accounting for goodwill that are available to private companies and not-for-profit organizations. Eligible entities may elect to amortize goodwill and/or test for impairment only once at the end of each reporting period.