Public companies could eventually see a simpler method allowed for the accounting of intangible assets in a business combination after it was recently permitted for private companies.
The Financial Accounting Standards Board is taking a fresh look at an intangible asset accounting alternative it just permitted for private companies to see if it should be extended to public companies and not-for-profit organizations as well. FASB’s Private Company Council persuaded FASB to permit the alternative for private companies to avoid unnecessary cost and complexity when measuring certain customer-related intangible assets and non-competition agreements.
FASB recently adopted Accounting Standards Update No. 2014-18 to provide private companies with an accounting alternative that would lead to the recognition of fewer intangible assets in a business combination separate from goodwill. FASB and the PCC determined the benefits of the information produced by the GAAP requirements for private companies did not justify the costs of producing the information. As with other exceptions granted to private companies, now FASB is exploring whether the same case can be made for public companies and not-for-profits.
The newly adopted accounting rule allows private companies to bypass the current GAAP requirement to recognize separately from goodwill any customer-related intangible assets that cannot be sold or licensed independently from other assets of the business and any non-competition agreements. Public companies and not-for-profits are still required to separately recognize and measure such assets until or unless FASB extends the exception to them as well.
FASB points out that even under the alternative for private companies, some customer-related intangible assets would continue to be recognized separately, such as mortgage servicing rights, commodity supply contracts, core deposits, and customer information, such as names and contact information. For private companies, the new accounting alternative takes effect for fiscal years beginning after Dec. 15, 2015, with the exact effective date dependent on the timing of transactions.