FASB issued a new GAAP alternative that is designed to make accounting for certain intangible assets acquired in a business combination less costly and less complicated for private companies.
Accounting Standards Update (ASU) No. 2014-18, Business Combinations (Topic 805): Accounting for Identifiable Intangible Assets in a Business Combination, describes the alternative, which was designed by the Private Company Council and endorsed by FASB. The ASU is available at tinyurl.com/nmk2ybn.
Under the alternative, private companies will be able to elect not to recognize the following separate from goodwill:
- Customer-related intangible assets, unless they are capable of being sold or licensed independently from other assets of the business, and
- Noncompetition agreements.
Many customer-related intangible assets would not be separately recognized under this alternative because they are not capable of being sold or licensed independently from the other assets of the business.
But customer-related intangible assets that can be sold or licensed independently would continue to be separately recognized. These include mortgage servicing rights, commodity supply contracts, core deposits, and customer information such as names and contact information.
“This accounting alternative will, for private companies, avoid the unnecessary costs and complexity encountered when measuring certain customer-related intangible assets and noncompetition agreements,” FASB Chairman Russell Golden said in a news release.
Public companies and not-for-profits are not permitted to elect the alternative, but FASB has added a separate project to its agenda to consider the alternative for public companies and not-for-profits.
Private companies that wish to adopt the accounting alternative must choose to do so upon the occurrence of the first transaction within the scope of the alternative. If the transaction occurs in the first fiscal year beginning after Dec. 15, 2015, the adoption will be effective for that fiscal year and all periods afterward. If the transaction occurs in fiscal years beginning after Dec. 15, 2016, the adoption will be effective in the interim period that includes the date of that first transaction and all periods afterward.
Early application is permitted for any interim and annual financial statements that have not yet been made available for issuance.