Last week, the Private Company Council (PCC) approved a new GAAP alternative that will enable private companies to elect not to separately recognize and measure certain intangible assets acquired in a business combination. This is just the latest action taken by the PCC since it was initiated in the later part of 2012 by FAF/FASB.
Under the chairmanship of TSCPA member Billy Atkinson, CPA-Houston, the PCC has aggressively moved to try and improve and simplify GAAP for private companies. This latest proposal is yet another example that the PCC is taking its responsibility seriously and working hard to achieve its mission. You can see an overview of the proposal here:
FASB’s endorsement of the PCC proposal is required for it to become effective. FASB will be discussing it in the coming weeks. If FASB endorses the alternative, it can be written into GAAP and companies can begin to use it, if they so choose.
Under the proposal, it is anticipated that customer-related intangible assets often would not meet one of the criteria for recognition. Customer-related assets that may meet one of the criteria for recognition would include things like mortgage servicing rights, commodity supply contracts, and core deposits.
Companies that elect the alternative would be required to separately disclose qualitatively any intangible assets that did not meet separate recognition under this alternative. The alternative would be applied prospectively for all business combinations entered into after the effective date, and there would be no option to apply it retrospectively. A private company that elects the alternative would continue recognizing and measuring under existing GAAP all intangible assets that exist at the beginning of the period of adoption.
Private companies that elect to adopt the alternative would also be required to adopt Accounting Standards Update (ASU) No. 2014-02, Intangibles—Goodwill and Other (Topic 350): Accounting for Goodwill (a consensus of the Private Company Council). The linkage between the two alternatives is one-way. A private company that adopts ASU No. 2014-02 is not required to adopt the alternative recently approved by the PCC.
This new alternative of the PCC, if approved by FASB, would take effect for business combinations entered into in the first annual period beginning after Dec. 15, 2015, and interim periods within annual periods beginning after Dec. 15, 2016. Early adoption would be permitted for any annual period for which the entity’s annual financial statements have not yet been made available for issuance.
While some would like to see even more and quicker action on this front, I think a realist would acknowledge that much progress has been made by the PCC in a rather short period of time, especially in the world of “standard setting.” So my hat is off to Billy and the entire PCC for its continuing work. While they have certainly not reached the end of their road, they have made significant progress on the journey thus far.