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The Financial Accounting Standards Board (FASB) recently issued exposure drafts of accounting standards updates designed to reduce the cost and complexity of accounting for intangible assets acquired by private companies in business combinations. A Private Company Council (PCC) advisory group to the FASB has been formed to improve the process of standards setting for private companies. The PCC has already made progress with the FASB's endorsement (December 2013) of goodwill impairment testing changes. In addition to the FASB endorsed simplified goodwill impairment testing rules, the PCC is gaining some traction with the FASB as it relates to potential rules changes in accounting for identifiable intangible assets. In January of 2014, the FASB identified three potential alternatives for the PCC's consideration, the alternatives are as follows:


No change

  • The requirement to recognize and measure identifiable intangible assets acquired in a business combination in accordance with Topic 805 remains as exists today.

Some intangibles recognized (goodwill and monetizing intangible assets recognized separately)

  • Only intangible assets that are saleable or licensed independently from other assets of the business would be ascribed value, beyond that of goodwill.
    • Likely to exclude customer based assets and non-competition agreements.
    • Likely to include technology and trade name and trademark related assets.
      • Likely to include contingent consideration. 

No intangibles                         

  • Any excess value beyond the tangible asset base and working capital would likely be ascribed to goodwill.
Concerns by financial statements preparers of private companies as to the cost and complexity of the requirement for fair value measurements are being addressed and further changes seem more likely than not. It's imperative that you and your valuation specialist understand the impact of proposed changes. For more information, please contact your local UHY LLP professional.