An 8-step checklist to help CFOs assess accounting alternatives

Not-for-profit healthcare organizations considering whether to adopt the accounting alternatives the Financial Account Standards Board (FASB) made available to them in Accounting Standards Update (ASU) 2019-16 should take the following steps:

1. Contemplate adoption of the accounting alternative thoroughly. The open-ended effective date and unconditional one-time election allow some flexibility.
2. Discuss the benefits and pitfalls of adoption of the accounting alternative as it relates to your organization with the organization’s auditors well before any transaction.
3. Identify any debt covenants that may be triggered as a result of a shrinking balance sheet (due to goodwill amortization) and lower earnings (due to higher amortization).
4. Before work begins, ensure there is alignment among the organization’s auditors,  the audit firm’s internal valuation specialist and any third-party valuation specialist the organization has engaged.
5. For purchase price allocations, discuss the calculation of consideration transferred, identification of intangible assets and methodologies to be used. This is critical  in any acquisition and a must in any  situation where a bargain purchase  situation could arise.
6. When conducting any goodwill impairment study, engage in a thorough discussion of a fair value game plan that includes management, auditors and the third-party valuation specialist.
7. Provide enough time for the audit firm to review the third-party report and expect there will be follow-up questions.
8. Ensure the accounting alternatives align with the ultimate strategic mission and purpose of the organization and be prepared for the possibility that the organization’s universe of buyers could shrink rapidly.