FASB nears vote on impairment testing of certain intangible assets

BY KEN TYSIAC

After reviewing a staff analysis of comment letters on its exposure draft on intangibles, FASB decided Wednesday to move forward with several of the concepts in the document and prepare the standard for a vote.

The board also made progress on public company subsidiaries and employee benefit plans in its project to define a nonpublic entity.

With regard to the proposed Accounting Standards Update (ASU), Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment, FASB affirmed its proposal to give entities the option to use a qualitative approach to assess the impairment of an indefinite-lived intangible asset. The details of FASB’s decisions are available on its website.

That would allow the entity to qualitatively assess whether it is more than 50% likely that an indefinite-lived intangible asset is impaired. A quantitative impairment test would not be necessary if management determines that it is no more than 50% likely that the asset is impaired. Additional disclosure requirements relating to the use of the optional qualitative assessment would not be necessary.

FASB also affirmed that a nonpublic entity would not be required to provide quantitative disclosures about significant unobservable inputs used in a Level 3 fair value measurement of an indefinite-lived intangible asset after its recognition. Those disclosures still will be required of public entities.

The board acknowledged that as the length of time increases since an entity last calculated the fair value of an indefinite-lived intangible asset, it can become more difficult to draw a conclusion on impairment solely on the qualitative assessment. This acknowledgement was made to enhance the consistency of impairment testing guidance between indefinite-lived intangible assets and goodwill.

Indefinite-lived trademarks, licenses, and distribution rights are examples of intangible assets subject to the proposal.

FASB directed the staff to draft a final ASU for a vote by the board.

Decisions made on nonpublic entities

In addition, FASB decided that a consolidated subsidiary of a public company would be deemed a private company if it otherwise meets the criteria for a private company set forth in the board’s project to define nonpublic entities.

Likewise, a company that meets the private company criteria and has a public company as a controlled and consolidated subsidiary would be deemed a private company.

Employee benefit plans would not be deemed private companies for financial reporting purposes.

The project is being undertaken to provide a clear, consistent definition of a nonpublic entity as FASB and its parent organization, the Financial Accounting Foundation, implement a new process for decisions on private company reporting with the formation of a new Private Company Council.

Ken Tysiac ( ktysiac@aicpa.org ) is a JofA senior editor.

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