Accounting Standards Update: Accounting for Identifiable Intangible Assets in a Business Combination
In recent Henry & Horne blog posts, we have discussed the implementation of new Financial Accounting Standards Board (FASB) Accounting Standards Updates due to The Private Company Council’s (PCC) diligent work in finding alternatives within U.S. Generally Accepted Accounting Principles warranted for private companies. In December 2014, the FASB formally issued Accounting Standards Update (ASU 2014-08), Accounting for Identifiable Intangible Assets in a Business Combination, which may be used by all reporting entities other than public business entities defined in ASU 2013-12 (see our July 22, 2014 blog post “What is the Definition of a Public Business Entity”), not-for-profit entities or employee benefit plans.
This ASU allows a reporting organization to not recognize the following intangible assets in a business combination:
- Noncompetition agreements
- Customer-related intangible assets that are not capable of being sold or licensed independently from the other assets of a business
One major item of note is the election of this accounting alternative will require the election of the private company alternative for goodwill in ASU 2014-02, Intangibles—Goodwill and Other (Topic 350): Accounting for Goodwill (see our August 19, 2014 blog post “Simplified Accounting for Goodwill for Private Companies”). But the adoption of ASU 2014-02 does not require the adoption of this recently issued accounting for intangible assets alternative.
The effective date of the ASU is for business combinations entered into in the first annual period beginning after December 15, 2015. As with other PPC alternatives, early implementation is permitted. When this alternative is elected, it should be noted that this accounting principal needs to be applied using a prospective approach for all business combinations entered into after the effective date. In addition, there is no option to apply a retrospective approach. Furthermore, the election of the ASU will not require any additional footnote disclosures outside of what is already required under Top 805, Business Combinations, which includes a qualitative description of intangible assets that do not qualify for separate recognition.
For additional information, the ASU is available for reading at www.fasb.org or reach your CPA for further discussion on the applicability to your entity.
By Kevin C. Bach, CPA, CVA