OUR THOUGHTS ON:

FASB Simplifies Accounting for Intangible Assets in a Business Combination

Audit|Business Advisors

By Christy Samek

The FASB, Financial Accounting Standards Board, has issued Accounting Standards Update (ASU) No. 2014-18, Business Combinations (Topic 805):  Accounting for Identifiable Intangible Assets in a Business Combination.  This amendment provides an accounting alternative for private companies.  According to this alternative, private companies may elect to treat certain intangible assets as goodwill rather than as separate intangible assets.  If elected, the following intangible assets would no longer be included in goodwill:

  • Customer-related intangible assets unless they are capable of being sold or licensed independently
  • Noncompetition agreements

Some customer-related intangible assets will still need to be recognized.  Customer-related intangible assets that may meet the criteria for separate recognition from goodwill include but are not limited to the following:

  • Mortgage servicing rights
  • Commodity supply contracts
  • Core deposits
  • Customer information such as names and contact information

Since electing to recognize such intangible assets as goodwill will cause amortizable assets to be included in goodwill and increase the total goodwill amount, a company that makes this election must also elect the private company alternative to amortize goodwill.  The election to amortize goodwill was previously issued in ASU 2014-02.   (However, a private company can choose to adopt ASU 2014-02 to amortize goodwill and not be required to adopt ASU 2014-18.) 

The decision to adopt the accounting alternative in ASU 2014-18 must be made when the first transaction occurs in fiscal years beginning after December 15, 2015.  Early application of this ASU is permitted.

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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2018 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

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