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GoodwillImpairmentBy Marlon Bernal, Principal

The FinancialAccounting

S t a n d a r d sBoard (FASB)has issued anupdate to U.S.generally ac-cepted account-ing principles

(GAAP) that provide an alternativefor private companies on the sub-sequent accounting for goodwill.The update is a consensus of thePrivate Company Council (PCC)that was endorsed by the FASB.

FASB Accounting Standards Up-date No. 2014-02, Intangibles—Goodwill and Other (Topic 350):Accounting for Goodwill, allows aprivate company to subsequentlyamortize goodwill on a straight-line basis over a period of tenyears, or less if the company candemonstrate that another usefullife is more appropriate. It also al-lows a private company to apply asimplified impairment model togoodwill. Goodwill is the residualasset recognized in a businesscombination after recognizing all

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the next level of serviceFor more information,

please contact Jim Peacockat jpeacock@uhy-us.com

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UHY LLPMid-Atlantic

April 2014 • Vol. 5 • No. 3

U H Y L L P p r o v i d e s s o l u t i o n s t o g o v e r n m e n tc o n t r a c t o r s i n a c c o u n t i n g , t a x a n d c o n s u l t i n g .

accounting rules on what to capital-ize and what to expense.

Website devel-opment costscan generallybe dividedinto variousstages. Thef o l l ow i n gtable summa-rizes the ac-counting treatmentfor the most common activities ineach stage. The table is based onFASB ASC 350-50 Intangibles—Good-will and Other: Website Develop-ment Costs. It is intended as anoverview and exceptions may apply.

Ask your website development con-sultant to provide a breakdown oftheir fees based on this table (seepage 2). Imagine the delight of yourauditors when they see the spectac-ular job you’ve done of properly ac-counting for your website develop-ment costs!

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Website Development CostsA detailed look at what toexpense and what to capitalizeBy Cindy McGiffin, Senior Accountant

An area of con-fusion I see

frequently on au-dits is the treat-ment of websited e v e l o p m e n tcosts. Clients tendto place their en-tire website devel-

opment costs in one bucket, eitherexpensing—or capitalizing—every-thing. The correct treatment is some-where in the middle, and knowingwhich activities are which is impor-tant. Fortunately, there are detailed

Imagine the delight of yourauditors when they seethe spectacular jobyou’ve done of properlyaccounting for yourwebsite development costs!

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Our firm provides the information in this newsletter as tax information and general business or economic information or analysis for educational purposes, and none of the information contained herein is intended to serve as a so-licitation of any service or product. This information does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein shouldnot be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisors. Before making any decision or taking any action, you should consult a professional advisor who has been providedwith all pertinent facts relevant to your particular situation. Tax articles in this newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposedon the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to war-ranties of performance, merchantability, and fitness for a particular purpose.

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the next level of serviceGoodwill Impairmentcontinued from page 1

other identifiable assets acquiredand liabilities assumed.

For years, private company stake-holders have made the goodwillimpairment issue a priority givenits onerous and costly complianceefforts. The new standard ad-dresses private company stake-holder concerns by reducing thecost and complexity of compliance,while still providing decision-usefulinformation for users of privatecompany financial statements.

Under the accounting alternative,goodwill is tested for impairmentwhen a triggering event occursthat indicates that the fair valueof a company (or a reporting unit)is lower than its carrying value. Aprivate company that elects theaccounting alternative is furtherrequired to make an accountingpolicy election to test goodwill forimpairment at either the companylevel or the reporting-unit level.

The combination of the amortiza-tion method and the relief fromthe requirement to test goodwillfor impairment at least annually isexpected to result in significantcost savings for many private com-panies that carry goodwill ontheir balance sheets. This is be-cause amortization should reducethe likelihood of impairments,and private companies generallywill test goodwill for impairmentless frequently.

We at UHY LLP are here to helpyou implement the accounting al-ternative for goodwill.

Stage Activities Treatment

Planning � Developing the Expensebusiness/project plan

� Determining functionalities

� Identifying hardware andweb applications/software

� Conceptual formation ofgraphics and content

� Selection of vendor(s)

Application and � Acquiring or developing hardware CapitalizeInfrastructure and software needed to operateDevelopment the website

� Obtaining domain name

� Developing or acquiring the softwarefor website operations, databaseand applications

� Purchasing the hardware

� Installing the hardware/software

� Testing the hardware/software

Graphics � Overall design of web pages CapitalizeDevelopment (design, layout, color, images)

Content � Data entry and data conversion ExpenseDevelopment of content

� Software used to integrate a Capitalizedatabase with the website

Operating Stage � Training employees on the new website Expense

� Registering the website with internetsearch engines

� User administration activities

� Backups

� On-going maintenance

� Upgrades and enhancements that Capitalizeincrease functionality

Website Development Costs, continued from page 1