FASB Finalizes Public Company Accounting Alternative for Intangible Assets

On December 23, 2014, FASB issued Accounting Standards Update (ASU) No. 2014-18, Business Combinations (Topic 805): Accounting for Identifiable Intangible Assets in a Business Combination. This amendment allows a private company to elect an accounting alternative for the recognition of certain identifiable intangible assets acquired in a business combination. As allowed under ASU No. 2014-18, a private company, those companies meeting the definition of a private company under ASU No. 2013-12, Definition of a Public Business Entity, would avoid what sometimes can be a complex calculation that requires the assistance of outside valuation specialists. As a result, the following intangible assets would no longer be recognized separately from goodwill:  

• Customer related intangible assets unless they are capable of being sold or licensed independently from the other assets of the business
• Noncompetition agreements

Some customer related intangibles that are capable of being sold or licensed independently would continue to be separately recognized, such as mortgage servicing rights, core deposits and customer information (customer/client lists).

The decision to adopt the accounting alternative under ASU No. 2014-18 must be made upon the occurrence of the first transaction within the scope of this accounting alternative. If the transaction occurs in the first fiscal year beginning after December 15, 2015, the adoption will be effective for that fiscal year and all periods thereafter. If the transaction occurs in fiscal years beginning after December 15, 2016, the adoption will be effective in the interim period that includes the date of that first transaction and all periods thereafter. Early application is permitted for any interim and annual financial statements that have not yet been made available for issuance.

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.

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