The Effect of New Merger Accounting Rules on Goodwill

Merger accounting rules that went into effect this year pose new challenges for credit unions considering a merger. Mike Sacher and John Murnane walk you through an example in this 13 minute CUtv Short.


Prior to 2009, accounting for credit union mergers was easy—"the whole equaled the sum of the parts." This is known as the Pooling of Interest method. SFAS 141 was revised in 2008 (SFAS 141-R) to eliminate the use of the Pooling method for mutual organizations including credit unions. The new method, referred to as the Acquisition Method, poses new challenges for credit union considering a merger.

One difference regards goodwill. Most of the time, goodwill will result from a credit union business combination, and will be recorded and then tested for impairment in future periods. Goodwill will not be amortized, which is a significant difference from how goodwill was accounted for in the past.


In this Special Access CUtv Short—Mike Sacher and John Murnane discuss what goodwill is and a 2-step approach for determining whether there has been impairment that needs to be accounted for in your annual statements. The first step compares the fair value of a reporting unit with its carrying amount, including goodwill. The second step compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill.

Part 1 of this CUtv Short clarifies what goodwill is. Part 2 walks you through an example of a $100 million credit union with 10 percent capital and 1 percent ROA.