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In late December 2014, the Financial Accounting Standards Board (FASB) issued an accounting standards update, ASU No. 2014-18: Accounting for Identifiable Intangible Assets in a Business Combination. Under current accounting standards, the acquirer of a company is required to recognize most assets acquired and liabilities assumed in a business combination at their acquisition-date fair values, including all intangible assets that are identifiable. Companies may now elect an accounting alternative for recognition of certain intangible assets acquired.

If an intangible asset is identifiable, an acquirer does not have to recognize the following intangible assets separately from goodwill: 1) customer-related intangible assets unless they are capable of being sold or licensed independently from other assets or 2) non-competition agreements. 

Many customer-related intangible assets will not meet these criteria for the accounting alternative because they are capable of being sold or licensed. Customer-related intangibles such as mortgage servicing rights, commodity contracts, core deposits and customer information will continue to be identified separately. However, intangible assets based on the value of existing customer relationships would likely meet the criteria for the accounting alternative.

Companies that elect this accounting alternative are required to also elect the accounting alternative for amortizing goodwill (ASU No. 2014-02 Intangibles - Goodwill and other: Accounting for Goodwill), which was issued in February 2014 allowing companies to amortize goodwill. This accounting alternative does not apply to publicly-traded companies or nonprofit organizations. Companies that decide to elect this alternative may benefit from the simplified accounting as well as have a reduction in costs associated with the complex calculations of determining intangible assets separate from goodwill. The accounting alternative is effective for fiscal years beginning after December 15, 2015; however, early adoption is permitted as soon as the first transaction within the range of the alternative takes place provided the financial statements have not yet been made available for issuance.

To stay up-to-date on the latest FASB activities, contact your local UHY LLP professional.