FASB Approves Private Company Accounting Alternative for Intangible Assets

At its meeting on November 5, 2014, the Financial Accounting Standards Board (FASB) approved exempting private companies from recognizing certain intangible assets they acquire via business combinations. As a result of FASB's approval, those companies not meeting the definition of a public business entity under Accounting Standards Update (ASU) No. 2013-12, Definition of a Public Business Entity, need not recognize noncompete agreements and customer-related intangible assets acquired via business combinations unless the intangible asset can be sold or licensed independently from the other assets of a business. Customer-related intangibles that may meet the criterion for recognition include, but are not limited to: 

• Mortgage servicing rights
• Core deposit intangibles

Requirements Remain

Despite the FASB's endorsement of the private company accounting alternative, private companies must continue to meet the disclosure requirements for intangible assets in Accounting Standards Codification (ASC) 805, Business Combinations, and include a qualitative description of their intangible assets that are not being separately recognized. Those companies electing to adopt the accounting alternative must also adopt ASU 2014-02. Intangibles - Goodwill and Other (Topic 350), which allows private business entities to amortize goodwill over a period not to exceed 10 years.

Early Adoption Permitted

The accounting alternative will be effective for mergers and acquisitions entered into during fiscal years that begin after December 15, 2015, and for quarterly or other interim reporting periods that begin in 2017. Early adoption is permitted for any annual and interim period for which an entity's annual financial statements have not yet been made available for issuance. Once elected, the accounting alternative must be applied for all business combinations occurring after the effective date. The accounting alternative cannot be applied retroactively.

For further information, please contact your local Eide Bailly professional.