Simplified accounting for private companies: Certain intangible assets
WHITE PAPER |
On December 23, 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-18, Business Combinations (Topic 805): Accounting for Identifiable Intangible Assets in a Business Combination, which provides a new accounting alternative for private companies related to the identifiable intangible assets recognized in the accounting for a business combination. The ASU includes the final decisions reached by the Private Company Council in its Issue No. 13-01A, "Accounting for Identifiable Intangible Assets in a Business Combination."
Under the ASU, a private company may choose to elect an accounting policy under which it would not separately recognize the following intangible assets in the accounting for a business combination: (a) intangible assets that would otherwise arise from noncompete agreements (NCA) or (b) customer-related intangible (CRI) assets that cannot be separately sold or licensed. The value of these intangible assets is effectively subsumed into goodwill. A private company may elect this alternative only if it also elects (or has already elected) the private company goodwill accounting alternative (refer to our summary, Simplified accounting for private companies: Goodwill).
If a business combination occurs in the first annual period beginning after December 15, 2015, the ASU is effective in that annual period and in interim and annual periods thereafter. If a business combination does not occur in the first annual period beginning after December 15, 2015, the ASU is effective in the first interim period (and corresponding annual period) in which a business combination occurs. However, a private company may early adopt the alternative in any interim or annual period for which it has not yet made its financial statements available for issuance.
This white paper provides additional information about the ASU’s scope, recognition provisions related to CRI assets and NCAs, disclosure requirements, effective date and transition provisions and the factors a private company should consider before electing the accounting alternative. In addition, an appendix is provided with answers to frequently asked questions about the accounting alternative.