Accounting Alternative for Goodwill

Mossberg Brothers, Inc. is a privately$-$owned corporation that manufactures and sells exterior window shutters. Opened and privately$-$owned by two brothers in $2000,$ Mossberg Brothers began with a single retail outlet and has since expanded to be the #$1$ seller and manufacturer of shutters in the entire southern United States. This success has been fueled not only by adding new stores, but also through targeted acquisitions of competing small businesses in key states across the south. As of $2018,$ the brothers each owned $40\%$ of the company, and third$-$parties own the remaining $20\%.$

Given its rapid expansion, Mossberg Brothers has not ruled out the possibility of one day taking their company public through an IPO. Doing this would give the company the cash to grow at a more rapid pace through additional targeted acquisitions. However, for now, the company is privately$-$held and prepares GAAP financial statements as required by its three bank lenders. Mossberg Brothers does not file financial statements with the SEC or other regulators.

As a result of its past acquisitions, Mossberg Brothers has a considerable amount of recorded goodwill on its financial statements. Mossberg Brothers is aware that the FASB permits an alternative that allows private companies to amortize their goodwill. Mossberg Brothers is considering whether to adopt this alternative. Amortizing, rather than impairment testing, its goodwill is expected to save the company approximately $$20,000$ in fees paid annually to valuation specialists.

Required:

You are an associate in the accounting advisory practice of a small public accounting firm on Long Island. Mossberg Brothers periodically engages your firm to assist in accounting for the company's acquisitions. Today, Mossberg Brothers asked for your firm$$s assistance in evaluating the appropriateness, and possible ramifications, of electing this private company alternative. You are to prepare an accounting issues memorandum that, at a minimum, address the following questions:

$1.$ What entities are eligible to apply the accounting guidance noted above and is Mossberg Brothers eligible to apply this standard?

$2.$ How does this accounting alternative differ from the measurement requirements for companies that do not $($or cannot$)$ elect this treatment.

$3.$ If Mossberg Brothers were to elect this accounting alternative, describe how the company would account for its goodwill and how its goodwill would be presented in its financial statements after this election. For this question, in addition to the ASC, please include $1$ nonauthoritative citation from a CPA firm.

$4.$ Would such a change be considered a change in accounting principle? If so$,$ what are the implications of this? If not, why?

$5.$ What other counsel would you give Mossberg Brothers related to application of this accounting alternative?

$($Hint: A copy of an article I co$-$authored in January $2015$ in The CPA Journal is attached. The answer is on the last page of the article, in the first column on the left side. If you use it$,$ make sure that you reference it$.$