FASB Proposal – Intangible & Goodwill Reporting

FASB Proposal – Intangible & Goodwill Reporting

The Financial Accounting Standards Board (“FASB”), on July 1, 2013, issued a proposed Accounting Standards Update (“ASU”) to Accounting Standards Codification (“ASC”) Topic 805: Business Combinations, entitled Accounting for Identifiable Intangible Assets in a Business Combination. At the same time, the FASB also issued another proposed ASU to ASC Topic 350: Intangibles-Goodwill and Other, entitled Accounting for Goodwill. Both proposals would apply only to privately-held companies.

These proposed ASUs were derived from deliberations of the FASB Private Company Council on certain issues under consideration and were developed to address private company stakeholder concerns about the relevance and complexity of aspects of U.S. Generally Accepted Accounting Principles (“GAAP”).

The first proposal would modify the requirements for private companies to separately recognize various intangible assets acquired in a business combination (merger or acquisition), generally allowing such companies to reduce the number of identifiable intangible assets booked in accounting for a transaction.

The second proposal would permit amortization of goodwill, the residual asset recognized in a business combination after recognizing all identifiable assets acquired and liabilities assumed, and a simplified measurement of goodwill impairment. Three key aspects of this proposed ASU are the following:

1. Frequency of Goodwill Impairment Testing – required to be performed only when a triggering event has occurred, instead of at least annually or upon the occurrence of a triggering event;

2. Entity for Goodwill Impairment Testing – tested using a fair value measurement at the overall entity-wide (enterprise) level, instead of the potentially more granular reporting unit level; and

3. Amortization of Goodwill – may be amortized for financial reporting purposes over the useful life of the primary asset acquired in the relevant business combination (not to exceed 10 years).

The FASB believes that these proposals are responsive to feedback from private company stakeholders indicating that the benefits of the current accounting for identifiable intangible assets and goodwill acquired in a business combination do not justify the related costs. FASB Chairman Russell Golden commented that these proposed ASUs “are intended to continue to provide users of private company financial statements with decision-useful information, while reducing the costs and complexity for preparers in valuing and accounting for intangible assets acquired in business combinations.”

Stakeholders are asked to provide comments on the proposed ASUs to the FASB by August 23, 2013. During the exposure period, the FASB will consider whether the proposed ASUs should be extended to public companies or not-for-profit organizations.
For more information on independent third party valuation services, including for financial reporting purposes, please visit www.houlihancapital.com or contact Paul Clark (pclark@houlihancapital.com) at 312-450-8656.

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