Goodwill Grief

Early bird, no worm -- first adopters struggling with FASB's new standards for intangibles.
Craig SchneiderNovember 13, 2001

In accounting, ignorance is anything but bliss. Confusion surrounding early adoption of the Financial Accounting Standard Board’s new purchase accounting rules has forced at least one eligible company to put its plans on hold for a year. “We had every intention of being an early adopter” of FAS 141, “Business Combinations,” and FAS 142, “Goodwill and Other Intangible Assets,” says Tony Ryan, CFO of Ansoft Corp. Unfortunately, he tried to move during “that odd period” when the rules had yet to be sorted out (see our special report “Goodwill Games II“).

Just before Ansoft reported its results for the fiscal first quarter (ending July 31) — a month after FASB approved the standards, and during the period when the Pittsburgh-based company should have disclosed its adoption plans — KPMG International advised the software company to hold off adopting the new standards. Consequently, Ansoft will have to amortize $1.2 million per quarter through April 30, 2002, when it adopts the goodwill standards. That advice, according to KPMG, was consensus guidance among the Big Five accounting firms. “In reality,” Ryan says, “there didn’t appear to be consensus among any of the firms and the Securities and Exchange Commission about how to adopt the rules.”

The auditors’ limited ability to interpret the new rules delayed Ansoft’s reporting by nearly a month. During that time, the company worked with a third party, KPMG Consulting, to learn how to adopt or implement the standards.

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The SEC’s guidance on disclosures still puzzles auditors, particularly with respect to the treatment of intangibles that are separate from goodwill. FASB intends to reconcile its rules with the SEC’s in early November. Brian Heckler, a partner at KPMG Transaction Structuring Services, says that the subjective nature of the standards is a possible deterrent to early adoption, and suggests that companies wait and see how peer groups or similar industries handle the new rules.

Although Ryan says Ansoft management has since “moved on” from the snafu, the series of events has left a bad taste in his mouth about FASB’s early adoption regulations, which he now calls “cumbersome.” “They’ve created a lot of work for valuation groups and accountants,” he says.