The aim of this short paper is targeted at broadening general understanding of the impact of accounting for goodwill in the Non-for-Profit environment based on its financial practicability and how a focus on the fair value of goodwill goes to the heart of the value of an Organization. Various amendments and new accounting rules; Enron and WorldCom misfortunes; Ponzi Schemes and other white collar financial frauds have brought about stricter governance and financial statement reporting responsibilities on organizations, including the government and non for profits organizations. The enactment of the 2002 Sarbanes-Oxley Act; the GASB Statement 34; and the FASB No. 142 has been ways to improve how financial statements are prepared, and recorded in a uniformed version. As a result on these stricter requirements, stakeholders, financial statements prepares and auditors alike must now focus more carefully on balance sheet goodwill and other intangibles fair values, which hopefully will lead to a more credible financial reporting and to more realistic pricing/valuation practices and protection of shareholders value.
Even though this paper is focusing on the non for profit part of goodwill, it is apparent that the treatment of good in a business combination is not very far apart from how it is treated in non-for-profits organizations except for some differences.
Reasons for Statement No. 142
According to FASB’s summary statement issued 6/01, analysts and other users of financial statements, as well as managements, noted that intangible assets are an increasingly important economic resource for many entities and are an increasing proportion of the assets acquired in many transactions. As a result, better information about intangible assets was needed. Financial statement users also indicated that they did not regard goodwill amortization expense as being useful information in analyzing investments. Opinion 17 provides little guidance about... [continues]
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