OUR THOUGHTS ON:

FASB and PCC Discuss Alternatives for Accounting for Intangible Assets in a Business Combination

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By Dan Nesbit

On January 28, 2014, the Private Company Council (PCC) met to discuss PCC Issue No. 13-01A, “Accounting for Identifiable Intangible Assets in a Business Combination.”  This issue discusses various alternatives for initial recognition of intangible assets in a business combination by private companies.   The three alternatives identified are (a) do not recognize any intangible assets separately from goodwill, (b) only recognize intangible assets if they are capable of being sold, and (c) no change to U.S. GAAP.

If a private company applies scenario (a), an entity would not recognize any intangible asset in a business combination separately from goodwill.  The private company would also be required to qualitatively disclose the nature of all intangibles that are unrecognized when applying this approach.

Scenario (b) would require a private company to recognize all intangible assets that are capable of being sold or licensed independently from the other assets of the business.  An example of this type of intangible asset would be a trade name.

An entity would continue to recognize all intangible assets acquired in a business combination separately from goodwill on the date of acquisition when scenario (c) is applied, which represents no change from U.S. GAAP.

During the meeting on January 28, 2014, the PCC directed the FASB staff to conduct further research and analysis on the alternatives, specifically on scenarios (a) and (b).  The FASB and PCC will reconvene later in 2014 to discuss findings on the research of these alternatives.  No effective date has been set for any Accounting Standard Update to be in place; however, once in place, early adoption will be permitted.

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