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:
- Contemplate adoption of the accounting alternative thoroughly. The open-ended effective date and unconditional one-time election allow some flexibility.
- 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.
- 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).
- 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.
- 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.
- 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.
- Provide enough time for the audit firm to review the third-party report and expect there will be follow-up questions.
- 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.