The FASB announced its ‘tentative decision’ in December which will no longer require companies to amortise goodwill arising from acquisitions. The board is set to issue an exposure draft in the next three months to gauge business’ reaction to its decision.
The move will bring the US standard closer to the UK’s rule FRS 10 effective since 23 December 1998 and the international rule IAS 38.
The UK standard requires purchased goodwill to be capitalised and amortised in most circumstances through the profit and loss account.
A clause in the UK standard however allows companies the option of avoiding amortisation of goodwill or tangible assets deemed to have an infinite life.
Under this option, companies must carry out an annual impairment review. But, it is understood that most companies amortise acquired goodwill to avoid the burden of annual impairment reviews.
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